When do you pay CGT versus profit from a flip?

Reply to the comment left by Mark Alexander at 28/02/2018 – 09:55
Thanks Mark, that’s really helpful. Lots to mull over!

I totally agree with Mark. If you buy properties to refurbish and sell for a profit in the short term rather than to let, then this is property development, which is taxed as a trade. The profit on sale is subject to income tax or corporation tax if you trade through a company and not capital gains tax as the properties you hold are trading stock rather than fixed assets.

The difference is, according to HMRC, the INTENTION at purchase, not what you end up doing. If it was purchased with the intention to trade it, ie do it up & sell it on for a profit the taxation will be treated as a trade regardless whether you rent it first or not. BUT, you should be able to show some proof of your intention in case HMRC challenges your treatment. Ie notes, calculations or emails backing up your intention. Active marketing of the property for sale, a logical reason why you are letting even though you had purchased with the intention to sell. It obviously works in the reverse also, if you purchased with the intention to hold long term and rent out, but ended up selling on instead HMRC may ask for corroboration that your intention at purchase was to invest rather than trade. In the real world your actions will be accepted as your intention if they speak for themselves, it equally won’t rule you out from doing the opposite providing you can back it up.

WHY would you prefer to pay income tax ( and possibly higher rates) than capital gains tax?
We try to make everything a capital gain.

Reply to the comment left by david porter at 03/03/2018 – 10:40
To whom is your question addressed David? You didn’t use the reply button so we are left to guess after re-reading every comment, and I don’t have time for that.