Demolish existing btl property new build for ourselves

[lewgeorge]

We have received a request to moderate this topic. Having reviewed all postings, we believe that the overall merit or value in terms of tax advice outweighs any "questionable" elements - but please, dear reader, do make sure with this topic in particular, that you read it in its entirety. With thanks and regards to all contributors - and apologies to the querist for butting in - TW Ed.

Hi any advice would be appreciated.
We bought an investment property 5 years ago which has been rented out. We now have planning permission to demolish and build a new home for ourselves to live in

We are a vat registered partnership building company - and due to the slump would like to carry out some of the work ourselves.

do we pay capital gains at the point of demolition? Even though the property hasn't been sold? Or eventually when the children leave home and we downsize in our retirement (15 years or so)

I assume if the latter then input cost includes the original price plus new build cost - the gain being apportioned to rental years and private residence years.

Also assuming the build cost would be zero rate would it muddy the waters to do some of the work ourselves or should it all be carried out by one contractor who I assume would bill us at zero rate.

Thanks for any advice.

Allison

[barriedowsett]

Hi Alison,

Please could you confirm if the property is currently owned by the Partnership Building Company. If it is then in terms of current market value would it below or above £150,000.

Hopefully I would then be able to give you some advice.

Barrie Dowsett

[lewgeorge]

Hi Barrie - we trade as a self employed building partnership rather than a separate limited co. The property was bought in our own name rather than our trading name. The majority of the work will be carried out by other builders with our own men working on it when we are slack of work. In that respect would our partnership invoice ourselves for the work at zero rate.

The cost was 450k 6 years ago and would sell with planning permission for around 600k. The development cost would be approx 300k with the sale value of around 1.2m in today's Market.

The existing house is 4 bed with planning for 6 bed - prob 1.5 times the size of existing. The property is currently "moving" and is cheaper to rebuild rather than refurbish.

Our intention is to sell our home and use the funds to rebuild the house and live in it for the forseeable future - prob around 10 years until the family have left home and retirement looms.

We bought 3 flats approx 4 years ago intended as starter flats for our children which will be signed over to them at some point - prob 10 years or so.

Thanks for any advice

Allison

[barriedowsett]

Hi Alison,

Thanks for sharing the additional information.

It is very good news that the property was purchased in your own name. The reason for this is that you intend to live in the property once it has been completed and as this will be your main residence (where you spend most of your time and receive most of your bills) you will be expempt from capital gains tax completely. Also you have issues on a stamp duty front.

Regarding the VAT aspect you will be able to reclaim VAT back on any work which is deemed to be a permanent in nature such as building work, heating system, electricity, tiled flooring (not carpets). A helpful website can be found at http://www.homebuilding.co.uk/feature/reclaiming-vat You make the VAT claim once your project is complete and therefore would need to fund this during the project phase. Is you property partnership business profitable, for which you pay income tax? If so, send me an e-mail and I will give you my thought on this subject barrie.d@ntlworld.com. I would also like to share with you my project as a year ago I have purchased some land in Leicestershire and have obtained planning for 2 very unique properties and with a background in Accountancy is why I am more that happy to share with you my exeperience.

On the flats front, I suggest that you undertake some CGT planning. Not sure if you are aware that every person in entitled to a CGT annual allowance each year (currently £10,680 for 2011_12), this includes your children. In order to utilise this and therefore reduce your CGT liabity when you gift the flats across to your Children I suggest that you transfer a small percentage to them now up to the current annual allowance. This can be acheved by a deed of gift that can be prepared by a solicitor for a fee of around £200 to £300. When you come to gift the flat across in 10 years you will need to do this at market value and I expect the value would of increased. The great thing about transferring this across to them now is that thier percentage of the flat at the higher market value will be alloacated to their CGT annual allowance and therefore you and your partner will be saving CGT. If you assume that this is at 28% (current rate), then you will be saving around £4k-£6k per child, dependant on market values, well worth the small investment in a deed of gift.

I hope this has been helpful and feel free to send me an e-mail on barrie.d@ntlworld.com

Also I have a personal webiste at www.barriedowsett.com and you can also find me on twitter.

Best of luck with your build it sounds really exciting.

Barrie Dowsett ACMA

[barriedowsett]

Hi Alison,

Just read my reply and it should say you have NO issues with stamp duty, sorry about that.

Barrie

[Incredulum]

In amongst your endless spam I found this.

The reason for this is that you intend to live in the property once it has been completed and as this will be your main residence (where you spend most of your time and receive most of your bills) you will be expempt from capital gains tax completely.

Why do you consider this to be the case?

[barriedowsett]

Hi Incredulum,

Thank you for your interest.

I am not sure why have classified my response as spam, please could you let me know how you have come to this conclusion as this is certainly not the intention. My reply is solely to be helpful and give my opinion.

If you have a look at Alison post you will see that their intention is to sell the main residence and live in the new property once it has been completed.

Kind regards

Barrie

[lewgeorge]

Hi Barrie - don't think my post went through so here it is again

I thought I would pay some cgt - either a straight 28% based gain between cost and Market value ( as there will be no change of ownership with land registry): or

10 years or so down the line on sale with a proportion of the gain for the letting period - with a max of 40k each ( I think?)

Re transferring 10k now for the children's flats - what a good idea if I have understood correctly. Transfer 10k now (below limit). Then in 10 years or so less gain to transfer plus 2 additional exemptions? Is that right.

I really do appreciate your help with this planning.

Regards
Allison

[Incredulum]

If you have a look at Alison post you will see that their intention is to sell the main residence and live in the new property once it has been completed.

Yes... so any future gain is tax free. However they have owned the land for five years, so a proportion of the gain will not be tax free.




The endless self-promotion (twitter, email, website etc. etc.) was a bit much like a spam fritter.

[barriedowsett]

Hi Incredulum,

As we all know property prices have not had the best of ride over the last 5 years and a market valuation of the property (considering it has structrual issues) should support a price which shows no capital gains. Of course the timing of the decision to apply for planning permission to demolish the house and build a new property for them to live in as their main residence is key, do you concur?

Barrie