When do you pay CGT versus profit from a flip?

When do you pay CGT versus profit from a flip?

11:49 AM, 27th February 2018, About 4 years ago 15

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If I buy a property, do it up, and sell it on, I think I have to pay income tax  on the profit.

If I buy a property, do it up, put in a tenant, then sell it down the line, I have to pay CGT.

My question is: What is the cross over point where it goes from tax on profit to CGT?

Thank you

Sunny



Comments

by S Somerset

13:23 PM, 28th February 2018, About 4 years ago

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

by S H

19:36 PM, 28th February 2018, About 4 years ago

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.

by Kate Mellor

9:38 AM, 1st March 2018, About 4 years ago

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.

by david porter

10:40 AM, 3rd March 2018, About 4 years ago

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

by Mark Alexander

11:21 AM, 3rd March 2018, About 4 years ago

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.


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