Tax Implications of Buy To Sell Refubishment

by Readers Question

17:13 PM, 8th January 2014
About 7 years ago

Tax Implications of Buy To Sell Refubishment

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Tax Implications of Buy To Sell Refubishment

Hi all

I was hoping someone could give me a bit of advice.

I am looking to diversify my investment portfolio (mainly stock market investments) by looking at investing for the first time at Property.

Having done a bit of reading, and looking at property prices (particularly down in London where I am based), I have come to the conclusion that the best approach to take is to buy a property to refurbish then sell on.

I have a fairly sizeable fund available, and the idea is to either buy something at auction.

As this is going to be my first project, I am planning on doing this as a personal project and not within the structure of a limited company. The plan is, that if this project goes well and I think I will undertake further projects to then consider setting up a limited company for further projects. Tax Implications of Buy To Sell Refubishment

My first question to you all is:

(1) Having just moved back to the UK working overseas, I do not own my own property, but instead rent. What would be the tax implication on any capital gain profits I making on flipping a property after I complete refurbishments. If I do not own a residential property, would my Buy To Sell property be considered my primary residence if I continue to live in rented property whilst I refurbish, or would I have to live in the property whilst I am undertaking refurbishments. If the property is classed as my main residence, what are the capital gain tax implications for this? Would all profits not be taxable or is there a capital gains allowances.

(2) Second question, going forward, if the intention is to go down the buy to sell route, as opposed to Buy To Let, am I better off doing this as a Limited company. I have already read Mark Alexander’s post on his preferred method of doing Buy To Lets as an individual as opposed to a Limited Company, but wondered what the best structure would be for Buy To Sell.

Thanking you all in Advance.

Jim


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Comments

Mark Alexander

17:23 PM, 8th January 2014
About 7 years ago

Hi Jim

Based on what you have outlined this is not investment, it is a trade, hence Capital Gain Tax and associated allowances are not applicable. Profits would be taxed as income.

With regards to PPR relief, this would not apply unless the property is genuinely your home, i.e you live there, you post goes there, you are on the voters roll there, you are registered with doctors/dentists there, your car is registered to that address, you driving licence is at that address etc. etc. etc. HMRC are really clamping down on this so be aware.

If the property is deemed to be your Principal Private Residence then there will no no CGT to pay, nor will there be any tax on profits. I have known people to live in a caravan in the garden until a property is fit for human habitation for this reason!

Using a limited company may well be the best way forward for this scenario but please take professional tax advice - see >>> http://www.property118.com/landlord-tax/

matchmade

17:40 PM, 8th January 2014
About 7 years ago

I agree with Mark: you can live in a property while you refurbish it but you need to live there properly (Mark lists all the aspects of what qualifies you for "genuine residence") at some point and for at least six months, ideally twelve if you intend to claim it is your PPR and that you want exemption from CGT. You are allowed to be living somewhere else - i.e. renting or in another PPR - during a refurbishment for up to a year, so if you already own a house you can effectively have two PPRs at the same time, but you have to move into the refurbished property once it is complete, otherwise you will be taxed heavily for conducting a trade.

Some people claim to have been serial renovators who have never paid a penny in CGT or income tax on trading, simply by moving from PPR to PPR. It is possible, but HMRC are much stricter now. You need at least a year between properties and even then, if HMRC detect multiple moves, they are likely to come down on you like a ton of bricks: they will want evidence for absolutely everything, investigate your personal life, your employment patterns, check you really did use a particular GP that you claim to have been registered with, and so on.

HMRC seem to be taking the view that Principal Private Residence Relief is not a right established in 1965 forever, but a luxury, a concession by them, and they are being very aggressive in attacking people who are effectively acting as smallscale property developers and trying to exploit the PPR rules.

Mike W

17:53 PM, 8th January 2014
About 7 years ago

Jim,

Some general comments. If its sounds easy it probably isn't.

The observations below come from someone who in the last 10 years has re developed over 10 houses including a listed building in a conservation area.

I think you need a tax expert to advise you or, like I did, you need to read some good books on the subject and then observe others. HMRC modus operandi is that you may have to prove your claims. Indeed they make take an extreme view and you then have to prove them wrong. Mark has addressed this. A (re)developer is charged income tax not capital gain tax. Even if you live in the property and do it several times over on a number of properties HMRC may take the view it is not your real home, just the way you run your business! Builders have to be careful.

You seem to think that renting is better than buying a house to live in. That is interesting in itself. You may be better off living in the house whilst it is renovated. Not nice but doable.

Also if you watch property tv programs and go to viewings of auction property you will find a lot of people are doing just what you want to do. Competition is strong and prices may not be what you think as a result. Indeed I find re developed property in London tends to be overpriced so don't think you will get the price that you think.

Then of course you are in London. I too have lived in London and I am always amazed that London prices are in another universe. So what makes you think that this disparity will continue for ever? If you do think it will continue I suggest you extrapolate into the future by 10-15 years to see the house prices then. Compare them to income levels and work out who will be able to buy them.

Finally although banks and building societies are now providing loans at 80%+ LTV the best deals (interest rate wise) are at 60% LTV or below. The reason is simple. Banks still think there is a chance that property prices will fall and they want to make sure it is your money that will be lost not theirs. Now they may be wrong, but if they are right about falling property prices what is your plan for that eventuality?

Mark and Laurence Collins-Willis

22:11 PM, 8th January 2014
About 7 years ago

Hi Jim,

Would you mind dropping me a line, please?

My email address is **MODERATED**

Thanks

...Laurence

Mark Alexander

22:59 PM, 8th January 2014
About 7 years ago

Reply to the comment left by "Mark and Laurence Collins-Willis" at "08/01/2014 - 22:11":

Dear Mark and Laurence Collins-Willis

Please help me to understand why you would like Jim to contact you directly as opposed to discussing his needs via the discussion forum.
.

6:44 AM, 9th January 2014
About 7 years ago

Reply to the comment left by "Mark Alexander" at "08/01/2014 - 17:23":

Many thanks mark.

I plan on structuring things correctly and not have to worry about whether or not the tax man will cometh. I think i will take a further look at structuring this into a limited compa y and see what sort of things i can do...if any to limit /offset profits.

7:03 AM, 9th January 2014
About 7 years ago

Reply to the comment left by "Mike W" at "08/01/2014 - 17:53":

Mike, i agree that house prices in london are getting pretty inflated in comparision to wages. Of course, there are many good reasons for this....one being that London is still thr primary destination of choice for economic migrants coming to the uk for the first time and secondly....still an attractive investment hedge for wealthy euro based investors. Whilst the crises grinds on in europe this should continue to support london prices for a bit longer, although i agree longer term things might getva bit shakey. For this reason i am not looking to hold but to refurbish then sell as the fundementalls for buy to let in london are not great unless you consider HMO...but i believe this soon will become a crowded market.

Mark and Laurence Collins-Willis

20:44 PM, 16th January 2014
About 7 years ago

Reply to the comment left by "Mark Alexander" at "08/01/2014 - 22:59":

I would like to run something past him.


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