I purchased an investment property in June 2003 using an interest only Buy To Let mortgage. After having carried out a programme of refurbishment, the property was advertised To Let. I now need to release my capital. Even though I bought the property as an investment, to date the property has remained unoccupied.
I now appear to be faced with several options:
1. Remortgage, thereby retaining the investment vehicle as well as providing funds.
2. Sell now whilst the market is favourable.
If the second option was implemented, what would be the tax liability on the following figures if I were to (a) Sell as a sole trader or
(b) Set up a holding company before selling the property and pay myself in dividends?
Purchase Price: £97,000
Cost of Refurbishment: £8,000
Interest Only Payments: £3,720
Present Valuation: £170,000
I have no other source of income.
I would be very grateful if you could please shed some light on this matter.
Kind regards,
R
Tax Planning Advice
2 posts • Page 1 of 1
by Ian McTernan CTA on Wed May 12, 2004 1:30 pm
First of all, setting up a holding company now would be of no use to you, as this would just be deemed a sale at market value to the company.
Secondly, there is some doubt as to what your intention was with the property, as you have no other source of income the Revenue may contend that you were in this for a profit and treat you as a property developer, in which case tax and NIC would be due on the profit, less the mortgage payments.
If you cannot rent out the property then I would suggest you sell it, take the profit you have and look at another project. If prices fell or it continues to be unlet, then you could lose a lot of the money you have currently tied up in the property. On the other hand, if you can afford the mortgage repayments and can obtain a larger mortgage and the price increase faster than the mortgage payments mount up, then it may be worthwhile keeping as an investment (bear in mind the profit is 60% of the rise in value after tax is taken into account).
Ian McTernan CTA
McTernan Associates Ltd
Chartered Tax Advisers
ian@imcternan.com
Secondly, there is some doubt as to what your intention was with the property, as you have no other source of income the Revenue may contend that you were in this for a profit and treat you as a property developer, in which case tax and NIC would be due on the profit, less the mortgage payments.
If you cannot rent out the property then I would suggest you sell it, take the profit you have and look at another project. If prices fell or it continues to be unlet, then you could lose a lot of the money you have currently tied up in the property. On the other hand, if you can afford the mortgage repayments and can obtain a larger mortgage and the price increase faster than the mortgage payments mount up, then it may be worthwhile keeping as an investment (bear in mind the profit is 60% of the rise in value after tax is taken into account).
Ian McTernan CTA
McTernan Associates Ltd
Chartered Tax Advisers
ian@imcternan.com
- Ian McTernan CTA
- Posts: 1131
- Joined: Wed Aug 06, 2008 3:02 pm
2 posts • Page 1 of 1
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