A Quiz For Property Traders

A Quiz For Property Traders

8:34 AM, 29th June 2021, About 3 months ago 26

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This quiz will run until the end of July 2021. We will then send a bottle of champagne to the person whose comment we like the most.

So, here’s the scenario.

A property trader buys a house for £200,000 with cash savings only and immediately flips it achieving a sale price of £300,000.

Two years later he buys the same property back for £360,000 (again with cash savings) and flips it again for a sale price of £420,000.

He doesn’t use agents, so he has no sales commission to pay, and he does no work to the property and spends no money on it whatsoever.

Now the questions are:

  1. How much gross profit or loss has the property trader made?
  2. How much better or worse off will the property trader be as a result of doing these two deals assuming that all tax rates remain unchanged as of today – 29th June 2021?

To make things a bit easier, we shall assume the Property Trader has no other income whatsoever and does both of the deals personally as a result of having no family. The trader does, however, own his own home.

Please leave your answer in the comments section below. Judges decision is final. This competition is not open to Property118 employees or Consultants. We do have the email address of all Property118 Members who post on our forums, so there is no need for you to leave contact your details. The winner of the champagne will be announced on 1st August 2021 on the discussion thread below and will be contacted offline to organise delivery.

Good luck 🙂



Comments

by Joe Robertson

10:43 AM, 29th June 2021, About 3 months ago

This sounds very straight forward to me - perhaps im missing something.

Gross profit from the first year is £100,000
Gross profit from 2nd time round = £60,000

1. total gross profit = £160,000

How much better/ worse off is the property trader?

2. In a strictly financial sense the trader who has flipped properties in his sole name will have been charged income tax on profits.

Assuming no pension contributions his take home would be:

year 1 = £66,693
other year = £43,493

total = 110,186

He will most likely gain a sense of satisfaction and pride of his ability to trade successfully with as little work as possible. I'd say hats off to him...but try to do 3 a year not 2 every 3 years.

*important* Whilst i do enjoy a cold glass of champagne - i really love British fizz more. Despite the awful name the finished product is far superior 😉

by Mark Alexander

10:49 AM, 29th June 2021, About 3 months ago

Reply to the comment left by Joe Robertson at 29/06/2021 - 10:43
Good effort but you have missed quite a few things.

by Ryan James

12:10 PM, 29th June 2021, About 3 months ago

My effort is based on CGT personal tax free allowance of £12,300 then at 28% for remainder. Personal income tax free allowance of £12,500 and then 20% for the next £37.5K and then 40% for remaining profit. I've also included £4K for solicitors/ conveyancing fees for both transactions which is fair for a purchase and sale x2.

First transaction - his total profits after CGT, personal income tax and solicitors fees = A touch over £49K profit

Second transaction - total profits after all of the above again = A touch under £29K

Combined total of £78K profit give or take 1% either way for rough calcs.

by Mark Alexander

18:04 PM, 29th June 2021, About 3 months ago

Reply to the comment left by Ryan James at 29/06/2021 - 12:10
Well done for picking up on solicitors/conveyancing costs and for taking a shot.

by Tim Rogers

15:12 PM, 30th June 2021, About 3 months ago

I trust a full answer will be forth comming after the 1st August?
It is questions like this that make me glad I have accountants.
As I buy and let, rather than flip, I have no experience to draw on. But wouldn't all this finance come under Capital Gains rather than income?
As we're placed in time as of 29/6/2021, there is 0 SDLT, but does that apply to 2 years ago too?
Then he/she does own is own home so doesn't the 3% surcharge apply even though 0 SDLT applies.
Presumably the capital amassed for the second purchase includes the profit from the first sale. So can that be offset tax wise retrospectively. Is the taxman that 'kind'?
This is too much like going back to school and facing interestingly worded 'O' level questions.....lol

by Mark Alexander

18:18 PM, 30th June 2021, About 3 months ago

Reply to the comment left by Tim Rogers at 30/06/2021 - 15:12
Yea a full answer will be posted on 1st August and it will be fully explained.

Well done for mentioning at least one other expense not previously considered.

I surprised more people have not attempted this challenge, especially the Accountants and Solicitors who regularly visit this forum.

by Dhiraj Morjaria

11:05 AM, 1st July 2021, About 3 months ago

I am not an accountant.
My Advice would be to buy through a Company
Property 1 HMRC
Year 1 £100,000
Take Wages £12,570 Tax Free £12,570
Profit £87,430
19% Tax £16,612
Net Profit £70,818
Take dividends £2,000 Tax free £2,000
Take dividends £32,500 at 7.5% tax £2,438 £30,063
Company Year 1 end balance £36,318
Year 2
Take wages £12,570 Tax free
Take dividends £2,000 Tax Free £2,000
Take dividends £21,748 at 7.5% £1,631 £20,117
Company Year 2 end balance £-
Property 2
Year 3 £60,000
Take Wages £12,570 £12,570
Profit for Tax £47,430
19% Tax £9,012
Company balance Year 3 £38,418
Take dividends £2,000 Tax Free £2,000
Take dividends £32,500 At 7.5% £2,438 £30,063
Take dividends £3,918 At 32.5% £1,273 £2,645
Total Tax paid £33,403
Total Profits taken £126,597
Take the Profit, immigrate to Malta and share the Champagne with Mark

by Dhiraj Morjaria

11:12 AM, 1st July 2021, About 3 months ago

I did the calculations using a spreadsheet but unfortunately it does not transfer over in the same format. Please excuse if this is confusing

by Mark Alexander

12:02 PM, 1st July 2021, About 3 months ago

Reply to the comment left by Dhiraj Morjaria at 01/07/2021 - 11:12
Very good effort. This is going to be very interesting to pick a winner, because everyone has missed something so far. Still plenty of time to go though

by Tim Rogers

13:41 PM, 1st July 2021, About 3 months ago

Devils advocate... but didn't the caveat "... does both of the deals personally...." specifically exclude working via a company?

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