Flipping – Legal but is it moral?

by Readers Question

9:54 AM, 23rd September 2019
About 3 weeks ago

Flipping – Legal but is it moral?

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Flipping – Legal but is it moral?

Flipping is back with a vengeance. It is quite legal and involves a house purchaser completing the purchase of house, moving in, then putting the house back on the market often for profit. I have seen examples of 40% profit and accept that is achievable.

It is trading in the “futures market”. I note that houses built in 1999 and sold, off plan, for under £100,000 are now achieving well over £300,000. Usually they are “flipped” within between four to twelve months. After that period, it is my Opinion that it should not be, considered to be, Flipping.

All the time the owner lives in the house and then resells it is his main residential home and there is no Capital Gains Tax liability.

As to morality I am unsure about it. It does force house prices upwards and there is no doubt about that!

Does it deprive first time buyers? Not in the sense of numbers. It neither adds to no reduces the number of houses available.

Does it price first time buyers out of the market? In many cases I think the answer is Yes.

It is a “Free Market” which is influenced by market forces. For many it is a “Cottage Industry” to supplement, tax free, their main income. In many cases the profit from Flipping exceeds their man income.

I must stress there is nothing illegal about Flipping.

Fergus Wilson



Comments

JJ

10:12 AM, 23rd September 2019
About 3 weeks ago

If I remember the HMRC rules correctly:

- if you move into a house that you have rented out previously and make it your main home before selling it then you are allowed a £40K uplift before being liable to CGT
- for a house that you have rented part of the time and lived in part of the time then you are allowed to apportion the CGT according to the amount of time that you have lived in it i.e. if you rent the property out for 5 years then live in the property 5 years you would be liable to 50% of the CGT
- but if you were to move into houses and repeatedly sell them as your main home over a short period of time then HMRC say that you would in their view actually be running a business and they would expect you to be paying business taxes.

So I doubt that flipping is a big problem although I don't have the numbers on how many houses are 'flipped'. Paying tax on the capital gain on your main home is a sensitive issue because in our society many people own their own homes and many more actually aspire to.

Even Jeremy Corbyn and John McDonnell own their own homes. John McDonnell I believe also has a holiday home in Norfolk.

Stamp duty and inheritance tax are already unpopular because it results in the eyes of many people in them being taxed more than once on the same asset. Any party that tries to stick capital gains tax on somebody's principle private residence isn't going to get many votes.

Binks

11:30 AM, 23rd September 2019
About 3 weeks ago

Reply to the comment left by JJ at 23/09/2019 - 10:12
I’d agree with you that although I’ve not seen any data of what the actual extent of flipping is, I really cannot see how it would be a marked issue in terms of affecting the housing market to any great degree. Entry and exit costs are high and - certainly in my area - buying off plan doesn’t seem to lead to any meaningful discounts, so I wouldn’t see this as a particularly good money making strategy to incentivise all that many ‘flippers’. Unless house prices are rising rapidly, which they are not.

Puzzler

11:32 AM, 23rd September 2019
About 3 weeks ago

surely only works in a rising market?

The Forever Tenant

12:35 PM, 23rd September 2019
About 3 weeks ago

If you can get value out of it, then go for it. You are taking a risk that you cannot get back what you are paying in fees to resell the property.

As you have said, you are not removing a property from the general market. As for being priced out, we are already in this situation so there's no issues there either.

JJ

12:40 PM, 23rd September 2019
About 3 weeks ago

Reply to the comment left by The Forever Tenant at 23/09/2019 - 12:35
You're also paying stamp duty.

I don't think you could form a reasonable judgement about whether it was moral or not without knowing the data on the numbers of properties 'flipped' and why.

During the year of the MPs expenses scandal a lot of MPs were 'flipping' their properties (declaring that one residence was their main residence when it probably wasn't). That's probably immoral. But if you make a property your main residence before you sell it and it genuinely is your main residence at the time you sell it I cannot see anything immoral in that.

Paul Essex

16:32 PM, 23rd September 2019
About 3 weeks ago

Stamp duty changes and the removal of letting relief in April 2020 make this a very risky strategy unless you can substantially improve the property value eg wreck to inhabitable or perhaps conversion into flats.

JJ

16:37 PM, 23rd September 2019
About 3 weeks ago

Reply to the comment left by Paul Essex at 23/09/2019 - 16:32
Indeed: So I doubt this happens often and if you were changing the property from wreck to inhabitable you would be doing something socially useful. If you took a property from wreck to flats you'd be increasing the supply of housing and still doing something socially useful. Neither of these things is immoral.

Michael Barnes

16:49 PM, 23rd September 2019
About 3 weeks ago

Seems like an article for the sake of writing an article.

I can see no relevance to landlords.

Whiteskifreak Surrey

16:53 PM, 23rd September 2019
About 3 weeks ago

Reply to the comment left by Michael Barnes at 23/09/2019 - 16:49
It has also been shared on FB. Post about S24 was not.

Binks

16:56 PM, 23rd September 2019
About 3 weeks ago

Reply to the comment left by Michael Barnes at 23/09/2019 - 16:49
I think you hit the nail on the head there

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