Property Trader - Tax Help

[JonEllison]

Hello

My partner went in to business last FY as a property trader - buying a property, doing it up and then selling it on.

She bought a property during the last FY. She paid Stamp Duty and Legal Fees (obviously on it). She paid for labour (direct to a property rennovation company) and materials (both to the rennovation company and direct to the wholesalers) to rennovate it. She also paid the bills for the property whilst it was being rennovated.

The rennovation was complete before the end of the FY, but the property did not exchange or complete until after the end of the FY.

Now she is filling in her self-assessment tax return (self-assessment pages) and I need some help.

1) We are fairly confident she pays income tax rather than CGT as her business is trading property; grateful for confirmation?

2) As the property hadn't sold by the end of the FY, am I right in thinking that it is a 'work in progress' and therefore counted against the 'cost of goods bought for resale or goods used'? At what value - the value it was eventually sold for, or the value it was bought for + cost spent on it to that point?

3) Is she able to use Legal fees and SDLT as an allowable expense? 'legal costs of buying property' appear to be included in the disallowable expenses section of the self-assessment form. But does this mean buying capital assets for the business - i.e. property that a business would use - as opposed to a business whose trade is in property?

4) What about the bills - electricity, gas, water etc. Do they fall under the category 20 ('rent, rates, power and insurance costs') or should they be under 'costs of goods bought for resale and goods used' as it was all paid for as part of the trade?

5) What category does the payment to the builders for labour (and the materials themselves) fall under? Category 16 - cost of goods bought for resale/goods used?

6) And before she started the property trading business, her money was sat in her personal bank account. I presume as long as we declare interest appropriately on the tax return (in the personal bit) it doesn't need to be declared as an income on the self-employment pages?

Many thanks!

Jon

[pawncob]

Yes it's Income Tax not CGT.
Yes WIP has to be taken into account, so at end of year one you use WIP to show either NIL profit or a proportion of the eventual profit. Profit doesn't really exist until a sale takes place, but historically, if you know the sale price you can allocate profit between years by adjusting WIP.
All costs are deductible under Schedule D rules.
Interest can be excluded from the Schedule D income.

[JonEllison]

Thanks - that's extremely helpful.

What category though of expense should the different things fall under on the form? It is very confusing - should I put the stamp duty and legal fees under the legal category (even though it explicitly says that property legal fees are disallowable)?

[pawncob]

As your T/O is under £68k put them all in Box 30

[JonEllison]

Good point - thanks.

But in future, do you know what category they fall in?

Essentially, are legal fees tax deductible under the goods bought or legal services section?

J

[pawncob]

If they are incidental to the acquisition of an asset they form part of the cost of the asset.

[Incredulum]

Profit doesn't really exist until a sale takes place, but historically, if you know the sale price you can allocate profit between years by adjusting WIP.

You are allocating profit across several years despite not having sold the property until the final year? What GAAP is that?