CGT and/or income tax from Property development

[TonyJackson]

My wife and I are close to purchasing a property with the intention of renovating it and selling it again after approx. 6 months. I will either take a sabbatical from work or leave employment while I do this. If successful, we plan to continue with further properties.
We will fund the refurbishment and living expenses from savings as well as about 30% of the property, needing a private mortgate to cover the rest.
I accept that our intentions mean we will be liable to some tax which is fine, within reason. But I would still like to understand better our potential tax liability (CGT and/or income) and the most effective way minimise this liability.
We also have a small business between us that is VAT registered, although with marginal turnover. I would like to know whether it would be beneficial to extend the registration to cover the development activities and therefore hopefully allow me to reclaim VAT on building supplies (but of course not have to charge VAT on sales !).

Any advice would be gratefully received.

Regards

Tony Jackson

[Neale]

Have care,you may be liable to be taxed as income from a trade (so denying you annual CGT exemptions). The REvenue's interpretation of your motives can be important under such circumstances.

neale@coules.com

[demetris]

Dear Tony,
for the inputs vat to be claimed back by your business, the property must be owned by the business if it's a limited company.

Otherwise, if you register for vat I am afraid there are no free lunches. You will not be able to avoid taxing on sale.

It might be a good idea to move in the property for about 3 months after purchase to establish main residence status. You should make an election to nominate your current house as your PPR and after you purchase the 2nd house you should vary the election in favour of your 2nd house for about a week. That will ensure that the last three years of ownership are exempt from CGT. Later you should again vary the election in favour of the 1st house.

It seems complicated but it works and it is worth it.

I hope this helps.
Demetris Savva BA FCCA
http://www.tax-accounting-london.info

[hq@vatease.co.uk]

Tony,

When you make the sale of the house it may be a VAT exempt transaction as it is "second-hand". This means that the VAT may not be recoverable. If you include this in your VAT registered business you may be able to take advantage of a special scheme which means you may be able to get more VAT back.

In addition to this, depending on the facts, there may be some scope for the reduced rate of 5% to be charged to you and finally if it is a listed building there may be even more scope for 0% VAT to be charged to you by the developer!

Complicated area and I do suggest that you invest a bit of money in taking professional advice, (my number is at bottom of this response if you want to contact me) because I'm sure there will be some savings to be made somewhere.

Good luck!

Kind regards
Simone Hurst-Franks
Principal
VATease - 0121 778 4299

[TonyJackson]

Thanks for your responses everyone, much appreciated.
I was actually planning on moving into the property whilst renovating it so it would therefore easily be regarded as my primary property. However I find it hard to believe that the IR would agree that moving house every three months and making a reasonable profit each time would not be seen as a trade (specially with no other source of income)!!
However, your answers are a start, thanks, I may come back to you privately later.

Regards

Tony Jackson