Buying a property to renovate and sell

manyspots · 20 March 2013 at 10:22PM

Hello,
My husband and I are interested in purchasing a property to renovate and sell. This would be our second property as we already own a home that we live in. Despite reading posts on here and on the revenue site I am still unsure about capital gains tax and wondered if someone might be able to answer a few questions.

The following is hyperthetical, we have not yet made an offer on a property although we have seen a couple that we are interested in:

Purchase: £90,000 (75% mortgage, we have 25% deposit)
Renovation: £15,000
Fees for solicitor buying and selling, estate agents and mortgage arrangement: £6,000
Mortage payments whilst we renovate and sell: £2,100
Estimated resale value: £125,000

Please can someone advise me on what tax I would be liable to pay. Am I right in believing that there is a threshold of £10,600 for capital gains tax and therefore we would only pay tax on any profit made after this threshold was exceeded? Can I deduct any fees or renovation costs from the profit to bring it closer to the threshold limit?

If we did follow this venture and it was successful we would be looking to do another renovation project. With this in mind would we then be entering a different sort of tax as we could be considered to be trading?

Thankyou in advance of any help or advice.

googler · 20 March 2013 at 10:31PM

manyspots wrote: »

If we did follow this venture and it was successful we would be looking to do another renovation project. With this in mind would we then be entering a different sort of tax as we could be considered to be trading?

What are doing with the first one, if it's not 'trading'?

Is it a hobby? A recreational pursuit?

manyspots · 20 March 2013 at 10:59PM

googler wrote: »

What are doing with the first one, if it's not 'trading'?

I thought that perhaps doing it once came under capital gains and doing it more than once became more of an ongoing business venture.

Ciderarmy1987 · 20 March 2013 at 11:17PM

manyspots wrote: »

Hello,
My husband and I are interested in purchasing a property to renovate and sell. This would be our second property as we already own a home that we live in. Despite reading posts on here and on the revenue site I am still unsure about capital gains tax and wondered if someone might be able to answer a few questions.

The following is hyperthetical, we have not yet made an offer on a property although we have seen a couple that we are interested in:

Purchase: £90,000 (75% mortgage, we have 25% deposit)
Renovation: £15,000
Fees for solicitor buying and selling, estate agents and mortgage arrangement: £6,000
Mortage payments whilst we renovate and sell: £2,100
Estimated resale value: £125,000

Please can someone advise me on what tax I would be liable to pay. Am I right in believing that there is a threshold of £10,600 for capital gains tax and therefore we would only pay tax on any profit made after this threshold was exceeded? Can I deduct any fees or renovation costs from the profit to bring it closer to the threshold limit?

If we did follow this venture and it was successful we would be looking to do another renovation project. With this in mind would we then be entering a different sort of tax as we could be considered to be trading?

Thankyou in advance of any help or advice.

If this is the 1st time you have done this, you have built in very little margin for error, your projected profit is only around 2K on an investment of around 50K not a huge amount more than you could get with 0 risk in a bank

Also your fees seem very low at 6K. You could easily spend more than that just on your selling fees

kingstreet · 20 March 2013 at 11:26PM

How much time have you spent researching mortgage availability for such projects?

JQ. · 20 March 2013 at 11:28PM

Ciderarmy1987 wrote: »

If this is the 1st time you have done this, you have built in very little margin for error, your projected profit is only around 2K on an investment of around 50K not a huge amount more than you could get with 0 risk in a bank

Also your fees seem very low at 6K. You could easily spend more than that just on your selling fees

Am I missing something, are they not projecting a profit of £12,000 on an investment of £45,000, a return of 26%?

OP have you spoken to a mortgage broker, banks are not particularly keen on lending to speculative developers, that could be quite a stumbling block?

manyspots · 20 March 2013 at 11:32PM

Ciderarmy1987 wrote: »

If this is the 1st time you have done this, you have built in very little margin for error, your projected profit is only around 2K on an investment of around 50K not a huge amount more than you could get with 0 risk in a bank

Also your fees seem very low at 6K. You could easily spend more than that just on your selling fees

Thankyou for taking the time to reply. I have built in £5,000 extra to the refurb costs which currently stand at less than £10,000. The £6,000 buying and selling was based on the total of figues gained from ringing up and getting quotes from solicitors, estate agents and the mortgage broker. Would you mind letting me know how you arrive at a higher cost for selling fees so that I can see where I have gone wrong. I worked out profit as £12,000.

manyspots · 20 March 2013 at 11:41PM

kingstreet wrote: »

How much time have you spent researching mortgage availability for such projects?

Thankyou for replying. We have spoken to a number of banks and a broker each time explaining what we wanted to do. A broker yesterday did mention a commercial mortgage but wouldn't go into more detail. Thsi was after my husband making it explicit that we didn't want to rent out the property. This made us think that a BTL mortgage was the wrong one to go for but the broker was not forthcoming in referring us to the commercial mortgage broker whom he said he worked with. We wondered if this was because he couldnt advise but we were very clear that we wanted to do up and sell so I would have thought the least he could do was say that a BTL mortgage wasn't what we should get if that is the case.

We would appreciate any advise on what sort of mortgage we should be looking for. We have always wanted to do this sort of venture but by no means plan to make a business out of it. Nor do we speculate making a fortune! It is quite simply fulfilling an interest at the same time as raising capital to put towards a house move for ourselves. Who knows, we may do one and hate it, never to repeat again.

manyspots · 20 March 2013 at 11:43PM

JQ. wrote: »

Am I missing something, are they not projecting a profit of £12,000 on an investment of £45,000, a return of 26%?

OP have you spoken to a mortgage broker, banks are not particularly keen on lending to speculative developers, that could be quite a stumbling block?

Thankyou for your reply. Might you be able to suggest ways in which we could finance a refurb and sell property. Unfortunately we cannot afford to buy outright.

CLAPTON · 20 March 2013 at 11:43PM

if a house at 90k will be worth 125k with only 10k of work, why is there not a queue of FTBs waiting to buy?

manyspots · 20 March 2013 at 11:49PM

CLAPTON wrote: »

if a house at 90k will be worth 125k with only 10k of work, why is there not a queue of FTBs waiting to buy?

We wondered the same thing! I have looked closely at the area including current properties for sale and past prices. I have enquired about feedback from previous viewings which so far seems to be that people want the house ready to move in to because they do not have the finances to buy and do it up themselves.

One estate agent speculated a much higher sale price which we believed to be inflated so the selling price we have built in to the equation is easily in line with what others are selling for in the area, in fact it is slightly lower. There are investors looking at the properties we have seen, two that we have seen have had an offer made on them by investors which tells us that we are looking at the right sort of properties. Two estate agents have said that many of their current investors are lower end investors.

PLEASE READ BEFORE POSTING

Buying a property to renovate and sell

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free