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  • FIRST POST
    manyspots
    Buying a property to renovate and sell
    • #1
    • 20th Mar 13, 9:22 PM
    Buying a property to renovate and sell 20th Mar 13 at 9:22 PM
    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.
    Last edited by manyspots; 20-03-2013 at 9:24 PM.
Page 1
    • googler
    • By googler 20th Mar 13, 9:31 PM
    • 14,827 Posts
    • 9,729 Thanks
    googler
    • #2
    • 20th Mar 13, 9:31 PM
    • #2
    • 20th Mar 13, 9:31 PM
    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?
    Originally posted by manyspots
    What are doing with the first one, if it's not 'trading'?

    Is it a hobby? A recreational pursuit?
  • manyspots
    • #3
    • 20th Mar 13, 9:59 PM
    • #3
    • 20th Mar 13, 9:59 PM
    [QUOTE=googler;60113139]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
    • #4
    • 20th Mar 13, 10:17 PM
    • #4
    • 20th Mar 13, 10:17 PM
    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.
    Originally posted by manyspots
    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
    FTB: Offer accepted 23/2/2013 Mortgage application 28/2/2013 Valuation: 4/3/2013 Valuation ok 15/3/2013 Mortgage Offer 21/3/2013 Exchange 10/4/2013 Completion 26/4/2103
    • kingstreet
    • By kingstreet 20th Mar 13, 10:26 PM
    • 34,131 Posts
    • 18,521 Thanks
    kingstreet
    • #5
    • 20th Mar 13, 10:26 PM
    • #5
    • 20th Mar 13, 10:26 PM
    How much time have you spent researching mortgage availability for such projects?
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • JQ.
    • #6
    • 20th Mar 13, 10:28 PM
    • #6
    • 20th Mar 13, 10:28 PM
    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
    Originally posted by Ciderarmy1987
    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
    • #7
    • 20th Mar 13, 10:32 PM
    • #7
    • 20th Mar 13, 10:32 PM
    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
    Originally posted by Ciderarmy1987
    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
    • #8
    • 20th Mar 13, 10:41 PM
    • #8
    • 20th Mar 13, 10:41 PM
    How much time have you spent researching mortgage availability for such projects?
    Originally posted by kingstreet
    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
    • #9
    • 20th Mar 13, 10:43 PM
    • #9
    • 20th Mar 13, 10:43 PM
    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?
    Originally posted by JQ.
    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
    • By CLAPTON 20th Mar 13, 10:43 PM
    • 41,651 Posts
    • 30,691 Thanks
    CLAPTON
    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
    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?
    Originally posted by CLAPTON
    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.
    • kingstreet
    • By kingstreet 20th Mar 13, 11:08 PM
    • 34,131 Posts
    • 18,521 Thanks
    kingstreet
    BTL mortgage lenders want readily-lettable property. In many cases, the fact that these are not going to be capable of immediate letting is going to make them unmortgageable by that route.

    Buildstore do renovation lending, but AFAIK that's designed for owner-occupiers.

    http://www.buildstore.co.uk/finance/renovation.html

    I tend to agree with the other opinions you've had. This is a commercial venture and it should be commercially funded. TBH all routes lead to your own bank for this. You can mess about seeing brokers, but the minute you put it in front of your own bank, if they want your business, they will undercut what you've been offered by 0.25% or thereabouts to secure it.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • phill99
    • By phill99 20th Mar 13, 11:34 PM
    • 8,201 Posts
    • 7,395 Thanks
    phill99
    You need a development loan. This is what commercial property developers use. All of the costs, interest etc is rolled up and repaid once the development (or in your case refurbishment) is complete and the property sold. This means you don't have to pay mortgage repayments while you are refurbishing.

    However, I think you have totally underestimated your costs. Most people underestimate the time it takes and the cost. I always say to people double the amount of time you think it will take, especially as you are amateurs and add 30 - 50 % to your cost base. Now factor in extra mortgage payments as the refurb time is longer, plus a council tax payments, utilities, buildings insurance, running around costs, out of pocket expenses eye. And you need a contingency because no matter what you think you will either a) come across an unforeseen problem of b) change your mind on things as you go along.

    You need to be looking at a project with a much higher margin as you are leaving yourself no margin of error for when it goes wrong. And it will.
    Eat vegetables and fear no creditors, rather than eat duck and hide.
  • Tancred
    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.
    Originally posted by manyspots
    15k seems a very tight budget for a house renovation. Are you planning on doing all the hands-on work yourselves? I would say 40k is realistic.
  • manyspots
    Morning,

    Thankyou eveyone for all of your replies they are very useful. The work we would do is re-carpet, paint, new kitchen and bathroom. We are looking to move the bathroom upstairs which would involve a bit of stud walling and then knock the kitchen into where the bathroom was to extend it. The house is perfectly livable now with no damp or structural issues. I have said renovate but its much more on the do-up side of the spectrum than the adding extensions and doing major refurb.

    The mortgage advice is particularly useful. We will now research that side more. I have also taken heed of your warning about contingency and underestimating costs. Back to the spreadsheet!
    • mel48rose
    • By mel48rose 21st Mar 13, 7:48 AM
    • 509 Posts
    • 467 Thanks
    mel48rose
    I watch daytime tv showing how easy it is to do up houses and sell on. I've always fancied having a go but would be scared to death of losing money on it and getting my fingers burned. Best leave it to the experts, I'd be very wary if I were you.
    If you change nothing, nothing will change!!
    • lessonlearned
    • By lessonlearned 21st Mar 13, 8:45 AM
    • 10,493 Posts
    • 66,403 Thanks
    lessonlearned
    I watch daytime tv showing how easy it is to do up houses and sell on. I've always fancied having a go but would be scared to death of losing money on it and getting my fingers burned. Best leave it to the experts, I'd be very wary if I were you.
    Originally posted by mel48rose
    You only become an expert by doing. No-one is born an expert.

    Manyspots - I recommend you invest in some good "how to" books. Get learning.

    I suggest our dear friends, Sarah Beeny, and Gary McCausland. Readable and easy to understand - and - they both know their stuff.
    You can pick them up from Amazon.

    Re Tax - There are a series of Tax Guides, specifically written for property business, published by the Tax Cafe. They cost around 25. Needless to say you will soon recoup your money on your investment. They are quite accessible for the layperson - well as far as anything to do with tax can be.

    Read and learn.

    Yes by all means come on here and ask the odd question but with all due to respect to the posters who are kind enough to give advice you really do need to put some effort into this and do your own homework.

    If you are really serious about this get learning.

    Oh and good luck.If you know what you are doing then yes there is money to be made. Get it wrong and you could lose a lot of money.
    Last edited by lessonlearned; 21-03-2013 at 8:47 AM.
    • googler
    • By googler 21st Mar 13, 9:08 AM
    • 14,827 Posts
    • 9,729 Thanks
    googler
    I watch daytime tv showing how easy it is to do up houses and sell on. I've always fancied having a go but would be scared to death of losing money on it and getting my fingers burned. Best leave it to the experts, I'd be very wary if I were you.
    Originally posted by mel48rose
    Next time you watch one, look at the copyright date on the end credits. I'd be very surprised if you find any made in the last few years.

    Wonder why that might be ... ?
    • GDB2222
    • By GDB2222 21st Mar 13, 9:26 AM
    • 14,706 Posts
    • 79,782 Thanks
    GDB2222
    Morning,

    Thankyou eveyone for all of your replies they are very useful. The work we would do is re-carpet, paint, new kitchen and bathroom. We are looking to move the bathroom upstairs which would involve a bit of stud walling and then knock the kitchen into where the bathroom was to extend it. The house is perfectly livable now with no damp or structural issues. I have said renovate but its much more on the do-up side of the spectrum than the adding extensions and doing major refurb.

    The mortgage advice is particularly useful. We will now research that side more. I have also taken heed of your warning about contingency and underestimating costs. Back to the spreadsheet!
    Originally posted by manyspots
    Just to give you an idea of what can go wrong, my brother had his pantry knocked into the kitchen. A simple job, with nothing structural involved. It turned out that the ceiling joists were resting on the "non-structural" pantry wall. Lots of renovation work later, it was was all put back again.

    Regarding the mortgage needed, if you can possibly raise the money on your existing home, that will save you a shed-load of problems/money. It means that you will effectively be cash buyers on the purchase. Plus it means that you will not be paying a mortgage broker to help finance each project you undertake separately. Plus home loan rates are much lower than commercial rates. Get an offset loan, so you are not paying interest whilst the money is idle.

    For tax purposes, it's a trade, even the first one => income tax. If you can get away with CGT, regard that as a bonus.

    "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."

    You are definitely looking at what places have actually sold for, rather than the asking prices?
    No reliance should be placed on the above! Absolutely none, do you hear?
    • 00ec25
    • By 00ec25 21st Mar 13, 10:21 AM
    • 6,989 Posts
    • 6,661 Thanks
    00ec25
    Your intention from the outset is to renovate and sell, that makes it trading so as GDB says that means Income tax. You might get away with CGT once, but do it again as you intend and you will forever be exposed to a retrospective investigation of your tax affairs and the whole thing unravelling. HMRC computers are easily going to spot you owning 2 properties and selling one soon after you bought it

    As for finances it’s a commercial/development mortgage (flag for tax!) or remortgage your current home (cheaper, but you’ll need a clear paper trail to support claiming the finance charges as a business cost)
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