A Quiz For Property Traders

A Quiz For Property Traders

8:34 AM, 29th June 2021, About 5 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 Mark Alexander

13:57 PM, 1st July 2021, About 5 months ago

Reply to the comment left by Tim Rogers at 01/07/2021 - 13:41
It did, but I still liked the cheek of the answer 😀

by Katy Ann

19:19 PM, 1st July 2021, About 5 months ago

If he’s carrying this on as a trading activity rather than as an investment activity (ie subject to income tax on the profits rather than capital gains tax on investment gains) he'll also be liable for class 2 and 4 national insurance.

by Mark Alexander

20:33 PM, 1st July 2021, About 5 months ago

Reply to the comment left by Katy Ann at 01/07/2021 - 19:19
Well done!

by Katy Ann

20:54 PM, 1st July 2021, About 5 months ago

Reply to the comment left by Mark Alexander at 01/07/2021 - 20:33
Sorry I couldn’t be bothered doing the actual sums!

by Mark Alexander

20:58 PM, 1st July 2021, About 5 months ago

Reply to the comment left by Katy Ann at 01/07/2021 - 20:54
lol 😂

by Chris Coyle

9:17 AM, 3rd July 2021, About 5 months ago

ITS GOOD TO SHARE...as in this site...leveraging each others knowledge to optimise the results...someone can have the Chanpagne if they can do my calcs (I`m not an accountant nor developer)...
Can `HE` make the property his sole residence whilst renting out his other property and is it not better to wait 6 months before flipping. Can `HE` do it through a temporary partnership to offset taxes by coming to a lucrative arrangement with the other partner (temporary owner) ?

by Bernard Mealing

19:18 PM, 4th July 2021, About 5 months ago

Yes BUT have they all taken into account INFLATION ????

by Paul Shears

19:52 PM, 4th July 2021, About 5 months ago

Reply to the comment left by Bernard Mealing at 04/07/2021 - 19:18
Or a change of processes? Oh dear. Hang on a minute. Ermmmmm........

by Ian Haynes

9:52 AM, 5th July 2021, About 5 months ago

You would need to look at treating this as a sole trader activity (the question states there is no other family and the transactions are done in his personal capacity, so I think this rules out the use of a partnership and/or a company) compared to CGT transactions.
HMRC would prefer the trading route as it would likely generate more income tax and NICs, compared to the CGT method.
As the individual, you would need to factor in the rates of tax (doesn't say if they are a UK taxpayer or Scottish) applicable, whether personal allowances are available in full or restricted, and whether the CGT annual exemptions are used elsewhere.
As far as costs are concerned, the trading route allows for general costs of operating the activity to be allowed including the cost of the legal fees, searches etc. whereas via the CGT route on the capital costs (legal fees etc.) are allowable; doubt there would have been any improvements made that would qualify.
In order to ensure the buyer could get a mortgage, they would be better retaining the property for six months rather than flipping straight away, and this is probably more likely if the increase in resale prices are to be believed. This could allow them sufficient time to secure PPR on the property prior to sale, so if going for the CGT route, this could result in the 'profit' (gain) being tax free. Not easy for most to uproot their lives sufficiently to do this but it's based on quality not quantity, so for a singleton, it could be possible.
As it is two transactions I suspect HMRC might have a hard time insisting this was a trade, but this would of course depend on what is actually done to the property prior to each sale - the 'badges of trade' would come into play here. You have to consider intention.
My guess - no, I've not done the workings either - would be that if all of the reliefs were available, the CGT route would result in a lower tax cost.

by Tim Rogers

10:16 AM, 5th July 2021, About 5 months ago

Hmmm, Just wondering if one could apply a few expenses such as travel? If the property was in Scotland and they lived in Cornwall a 1200 mile round trip a few times at 0.45p a mile, (0.50 if you have a legitimate passenger) would all help.


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