CGT or Income Tax allowance????

terryw

Mikeyorks wrote: »

There you have me. But I suspect that HMRC would happily subsume it under his currently self-employed status? As merely a furtherance of his existing self-employed activities.

Na, I was being a bit tongue in cheek there but thanks anyway. Just to be argumentative, this would not do as his first business is electrician and this is a second business as developer.

Having said that, I would like to see a link where the doing up of a property on a one-off basis is considered a trade rather than a GC.

Any ideas folks?

terryw

jimmo

A bit tenuous but here you are.
http://www.hmrc.gov.uk/manuals/CG1manual/CG10260.htm
The taxman’s way of thinking is to question whether something is income chargeable to income tax or not. If it is not income chargeable to income tax, is it a Capital Gain chargeable to Capital Gains Tax?
So, if someone buys a house in a dilapidated condition, does it up and sells it is that an adventure in the nature of a trade or not?
As a former taxman I think so.
If you buy shares expecting to make a profit that’s investing but you’re not going to add an en suite bathroom. If you buy a house expecting to make a profit, do nothing to it and market it at a higher price, that’s investing.
But that’s not the situation.
Andyquoys seems to have spent the best part of a year working solely on the house and has already sold it.
Frankly, it is too late for him to start tax planning. He has already established the basic facts and he is liable to Income Tax.

terryw

jimmo wrote: »

A bit tenuous but here you are.
http://www.hmrc.gov.uk/manuals/CG1manual/CG10260.htm
The taxman’s way of thinking is to question whether something is income chargeable to income tax or not. If it is not income chargeable to income tax, is it a Capital Gain chargeable to Capital Gains Tax?
So, if someone buys a house in a dilapidated condition, does it up and sells it is that an adventure in the nature of a trade or not?
As a former taxman I think so.
If you buy shares expecting to make a profit that’s investing but you’re not going to add an en suite bathroom. If you buy a house expecting to make a profit, do nothing to it and market it at a higher price, that’s investing.
But that’s not the situation.
Andyquoys seems to have spent the best part of a year working solely on the house and has already sold it.
Frankly, it is too late for him to start tax planning. He has already established the basic facts and he is liable to Income Tax.

Thanks for the reply (and also from the other contributors). The reason I have been so interested in this topic is that a friend is in a similar (but not exact) position.

He has renovated a house over the last two years in his spare time - he works full-time. The original intention had been to move into the renovated property when it was completed but this plan has had to change because of the expenditure on the renovated house, and he is now likely to sell it.

Would you still consider this liable to IT rather than CG - the two CG exemption figures for husband and wife (in joint names) would negate any CG but if it is charged to IT, there will be a substantial liability.

Any thoughts welcome. Thanks.

(Andyquoys..apologies for asking this in your thread)

Terryw




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jimmo

On this forum, I believe what you say and the way you present the details it sounds as if your friend is heading for a Capital Gain (or loss).
In work, if enquiring into your friend’s Return, I would go through everything with a fine toothed comb.
How did he acquire the property? If he inherited it that is probably a pointer to Capital Gains. If he bought it, that raises doubts whether he bought it as a future home or a speculative opportunity.
If his original intention was to renovate and move in what is stopping him doing exactly that?
You said “…because of the expenditure on the renovated house, and he is now likely to sell it.”
Obviously costs need to be covered but what is wrong with selling the existing home to raise capital and moving into the renovated property?
Then I would look at the extent of renovations, how much he did himself and how much he paid others to do.
I would also look at the personal circumstances such as if he moved into the house how convenient would that be for work? Would the children have to change schools?
I‘m afraid there is no easy answer.

terryw

jimmo wrote: »

On this forum, I believe what you say and the way you present the details it sounds as if your friend is heading for a Capital Gain (or loss).
In work, if enquiring into your friend’s Return, I would go through everything with a fine toothed comb.
How did he acquire the property? If he inherited it that is probably a pointer to Capital Gains. If he bought it, that raises doubts whether he bought it as a future home or a speculative opportunity.
If his original intention was to renovate and move in what is stopping him doing exactly that?
You said “…because of the expenditure on the renovated house, and he is now likely to sell it.”
Obviously costs need to be covered but what is wrong with selling the existing home to raise capital and moving into the renovated property?
Then I would look at the extent of renovations, how much he did himself and how much he paid others to do.
I would also look at the personal circumstances such as if he moved into the house how convenient would that be for work? Would the children have to change schools?
I‘m afraid there is no easy answer.

Thanks for the reply and for wearing two hats.

The renovated house was bought with cash and is only a few yards from his own, and there are no kids at home to worry about. He works locally. Everything is tied up with the costs here...at present if he sells his existing house, he is unlikely to obtain a mortgage on the renovated property and will be left with heavy debt. to be paid in the short-term. In an ideal world, he would move.

terryw

jimmo

OK. As a taxman, why can’t he get a mortgage on the renovated property? He’s spent 2 years doing it up. That has cost him lots of time and presumably lots of money.
If he can’t get a mortgage is that because of his personal/ financial circumstances or is the property, even in its renovated state, not suitable for a mortgage?
If his inability to get a mortgage on the renovated property is personal what has changed in the 2 years since he bought it for cash? Even very basic thinking would have shown that the renovations were going to cost pretty significant amounts of money and that he was going to have to raise mortgage finance in order to move in.
If the renovated property is not suitable for a mortgage generally then he can only sell to a cash buyer and he‘s not going to get that much for it.
If its not suitable for a mortgage now, after his renovations, how did he realistically expect to be able to move in when he bought it?
He therefore needs to be able to demonstrate that when he bought the property he had a realistic chance of doing all the necessary renovations and obtaining the necessary finance to move in.