Buying a house to refurbish then sell

rqy99g · 24 September 2018 at 10:53AM

Hi

A few years ago I renovated our current property and enjoyed the process. I'm now retired and being a bit bored and fed up with the current low interest rates on offer with regard to my savings I feel I could be putting both my time and money to better use!

Before I jump in and buy a house to renovate with the purpose of selling on I'd like to take advice on what the tax implications would be.

So just for purposes of an example if I bought for £90k, spent £25k and sold for £135k what tax would I likely pay?

I would only look to renovate 1 property a year and for me it would be a hobby with earning potential. I realise the taxman wouldn't just see it as a hobby though: )

For those of you who have done this (and I'm sure there are many) and anyone who knows tax law can you point me in the direction of what I should be reading as I want to do it properly (though I there are costs I can legitimately avoid obviously I would do)?

Regards

Simon

eddddy · 24 September 2018 at 11:45AM

HMRC would regard that as a business - buying property in order to renovate and sell it.

So any profit you make would be subject to income tax. (How much income tax you'd pay would depend on how much other income you have.)

But it's much harder to make a profit on house renovation now than it used to be. There's lots of scope to lose money!

Also, bear in mind the stamp duty (£2.7k), Estate agent fees (£1.2k?), 2 lots of legal fees etc.

hazyjo · 24 September 2018 at 11:54AM

When you did it before, was it in a rising market?

As eddddy says, it's not so easy these days.

How much would it cost you to actually keep that house for up to a year? Council tax, running costs, maintenance, etc?

You're saying £20k profit in that scenario, but you need to take these other costs into account, plus the costs eddddy mentions (maybe £5k total knocked off your profit - maybe more?), not to mention market conditions which, especially around Brexit, could easily knock another £10k off at least after a year (not to mention making it harder to sell as people may be cautious re buying, making it a buyer's market).

SG27 · 24 September 2018 at 12:26PM

I've bought a house to renovate, not to sell it will be a long term family home. I thought we got a very good price but now we have started the process I realise we will probably end up paying about £15k more than if we had bought a similar house all done. I think it would tough to make a profit doing it.

rqy99g · 24 September 2018 at 12:44PM

Thanks for the replies.

I refurbished our home around 3 years ago, so not really much movement and unfortunately it really isn't a good example of how to make money as I probably paid a bit over the top for it as it was the perfect bungalow in just the right area and we spent more on it to get it just how we want as it would be our forever home.

I have always had a good+ level of DIY and did jobs that I haven't previously undertaken i.e. fitting a kitchen and the work I have done is certainly equal to what I have seen done by professionals. Take me longer but for me that isn't the issue it is about getting it done properly. I have realised watching the bathroom fitters that again (in the right property) that is a job which I can undertake on the next project.

In terms of tax and costs involved are really what I've got to get my head around and the reality for me is to make some money to top up a £17k pension and although my wife is currently still working she will draw a pension roughly similar in the not to distant future.

Estate agent fees our local independent (how are very good) have fixed fee of £749

I've used online solicitors previously to buy and sell is approximately £1200 (total for 2 x single events i.e. 1 x buy, 1 x sell).

But then there are surveys but I skipped with our house and used the judgement of a couple of local builders (pay your money ant take your chance!).

In theory if it is a business would I be able to claim VAT back on labour/materials used on the project?

Cheers

Simon

eddddy · 24 September 2018 at 1:06PM

As SG27 suggests - buying a house, replacing the kitchen and bathroom, repainting etc, isn't likely to make you a profit. It's more likely to make a loss.

To make a profit on property renovation, you generally have to do bigger stuff - maybe an extension to provide an extra bedroom, a loft conversion etc.

Or take an unmortgagable property and make it mortgageable. (e.g. by repairing structural problems)

AnotherJoe · 24 September 2018 at 1:18PM

If you like decorating, set up a decorating business and take on a workload that fits with your needs.
If you like odd jobs, a bit of gardening a but if plumbing etc, set up a handyman business with the same philosophy.
If you want income, get a job stacking shelves or working at B&Q

Any of these will pay more, be more manageable, take up less time and allow you more control on how much time you have, and will far less risky with no real chance of loss, than your scheme which will likely lose money.

rqy99g · 24 September 2018 at 1:37PM

What has been said in the comments above makes sense to me. The reality is I shouldn't be looking at projects where making a loss is likely.

I really don't fancy stacking shelves! However I would get satisfaction out of the odd jobs idea however I suspect there are lots of people at it.... I'd just have to do it better than them:rotfl:

And like was suggested I could pick and choose amount and level of work type.

somethingcorporate · 24 September 2018 at 1:50PM

Unless you have actual experience of managing such a project you won't know if you will be making a loss until it's all done/complete/wrapped up.

£20k before any fees are taking to account is a very small amount of profit which could be far less than minimum wage once everything is taken into account.

Hoploz · 24 September 2018 at 5:55PM

As with a lot of businesses involving buying and selling, and it's even more true in today's economic climate ... You make your money by buying at the right price. You've already pointed out that you feel you overpaid on the one you are in. It's likely you might retrospectively realise you've done it again next time.

If you have a lump sum in an affordable area I would second buying an unmortgageable property with cash and making it mortgageable. However this is not really a game for an amateur. The recent tax rules make it pretty pointless for most people. Hence my days of buying additional properties have gone for the moment.

RedFraggle · 24 September 2018 at 9:32PM

rqy99g wrote: »

What has been said in the comments above makes sense to me. The reality is I shouldn't be looking at projects where making a loss is likely.

I really don't fancy stacking shelves! However I would get satisfaction out of the odd jobs idea however I suspect there are lots of people at it.... I'd just have to do it better than them:rotfl:

And like was suggested I could pick and choose amount and level of work type.

So many people struggle to get small jobs done so imo a local handy man is a good option. You should advertise locally and see what happens.

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Buying a house to refurbish then sell

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