Help With Property Trading, Investment Taxes.

[lees75]

Hello all

Having recently just bought a property which is currently being renovated, I have a few questions with regards to tax which hopefully will help me out and allow me to make decisions on the future plans with the property.

The Property has been bought in both me and my wife's name, I am in the 40% tax bracket while my wife is not working at the moment.

The plans for the property was to either sell it on when it was complete or maybe keep as an investment and let the property out.

Can you advise me on the following questions...

1. Am I correct in saying that if we sell the property after renovation, HMRC would regard us as property traders and be subject to income tax.

If so what allowances can you offset against income tax i.e., can they include building materials, kitchen and bathroom fixtures/fittings, heating, wiring and any labour costs, legal costs, etc.

2. If we kept the property as an investment, let it out and paid income tax on the rental income. How long do you need to own the property before HMRC regard the sale of property as selling the investment and hence pay CGT. This is presuming that want to sell down the line.

What other allowances can you offset against CGT apart from the basic CGT personal allowances. Can you add allowances as mentioned above in question 1, if the property is sold down the line after a period of renting out the property?

3. Am I correct in saying that if we are classed as traders (and have to pay income tax) on the sale of the property will it be possible to transfer the property into just my wife’s name before sale for tax purposes and use her personal allowances etc and pay only the basic (lower) tax rate as appose to my share of taxes at higher tax rate of 40%.

I would really appreciate any help given just as a general guide and correct me if anything mentioned is incorrect.

Kind regards

Lee.

[Peter D]

If you intend to sell the property on then you should be registered as self employed and Yes IT will apply. All the costs of the renovation are deductible. This includes the cost of finance, legal fees, rates, utility bills, evertyhing except your time ( labour ) third party invoiced labour is deductible. All costs that are wholly and exclusive spent on the renovation ae deductible.
If you rent it out for a year then yes any disposal would be a CGT issue. A 'Declaration of Trust' can be drawn up to declare your wife is the beneficial owner and a Form 17 submitted to HMRC and this can minimise the IT on the rental income and CGT on disposal. However remember to retain a large enough percentage to use up your CG Allowancw ( £10,600 ). Regards Peter

[Incredulum]

If you intend to sell the property on then you should be registered as self employed.

This is not necessarily so. Much is based on your intention prior to acquisition of the property; and also your intention after you dispose of the property.

You might acquire a rental property, do it up, and discover that it will show a loss on rental income, so you sell it before renting it out. That does not make it trading.

But if you do this more than once then it begins to look much more like trading - and that would affect the first property too.

[lees75]

Hi

Big thanks for the responses far, most appreciated.

If we declare a 'Declaration of Trust’ what should be the minimum level to retain the capital gains allowance and how long do you need to keep the property before the taxation changes from IT to CGT?

What could be offset against to CGT in the way of renovation costs, as I understand it likes of decoration can not be used but if you had to plaster and decorate after re-wiring & plumbing works would this be acceptable as an offset to reduce CGT. What exactly can be offset against CGT in the of kitchens & bathroom fixtures, wiring & heating systems? Or are the only allowable offsets like building extensions?

Also where would you stand with taxation if you sold the property (making a profit on the sale) with the proceeds buying 2 smaller properties which you intended to keep as investments and let them out does the sale still attract taxation?

Regards

Lee