Buying property off-plan and selling before actual completion.

[david@jellymen.co.uk]

I am looking at buying investment property both here in UK and overseas.The intention is to buy at a very early stage and sell on just before completion to realise capital growth. Would I be liable for CGT if the buy and sell transaction took place before the property was completed. I feel sure that there must be a tax implication other than income tax but am unable to discover any info.

[Matt E]

If your plan is to buy properties in a number of locations with the purpose of developing them, it sounds to me like you will be trading as a property developer, regardless of the stage at which you transfer ownership.

As such, you would be potentially taxable on your trading profits.

I say "potentially" because in the circumstances that you describe, you can plan around it (for UK properties anyway).

If you think you will have significant profits (£200k+), you should consider taking advice as to the structure necessary to shelter the gains from tax....

Regards

Matt

ms.evans@virgin.net

[david@jellymen.co.uk]

I am actually looking to purchase from developers at the early plan stage and to then sell just before the building is completed to capture the inherent capital growth if any. Basically I will be providing the developers with the security they will require to obtain their financing.I will only be looking at 2 or 3 properties in the first instance.

[Matt E]

Thanks. The fact that you intend doing it a few times indicates that you are trading - I'm still not quite sure quite what you're trading in, but you do anticipate making a profit.

Re my confusion on what you are doing, can I illustrate with an example a typical property development, for you to indicate what you are doing differently to the norm. All values are the current market value at the relevant time - everyone is paying the market rate for the property they buy.

You buy a property for, say, £200k

Developers improve property at a cost (including their labour) of, say £100k

You sell property for, say, £425k

(This sale might be to a purchaser or to the developers)

Overall profit is £125k

Do you receive all of this £125k profit? Do you physically pay the property developers their costs (including labour)?

Or have you entered into a joint venture with the developers?

Matt

[david@jellymen.co.uk]

Thanks for your response so far.
The actual scenario would be a little more like this :-
I contract to buy at the planning stage and pay a deposit to the builder of say 30% of todays prejected value. Builder then builds the property and just before completion I sell on the contract to buy to a 3rd party. The property has by now appreciated in value by say 10% ( this is common in many but not all developments)which is would increase the price to the 3rd party by that amount and so would be my profit.

Hope that clarifies the transaction a little more.

Thanks

[Taxbar]

The usual practice is to treat this as investment gains and subject to CGT.
If it happens frequently and the holding periods are short say less than 12 months before sale, then there maybe an issue of trading.

Overseas, each country has their own tax treatment.

In Spain for example and see article by (Jonathan Miller in my section of this site) its subject to Spanish CGT @35%.
Also remember that if the foreign tax rate is below the UK rate, then the balance is taxable here!

Daniel Feingold
STP
info@stratax.co.uk

[Roni90]

In this property off Plan[/url] Market?
What do you see as the advantage here, the price could well drop....