Hi all
In January 2017 I bought a residential property jointly with a friend of mine, with the intention of converting it to 2 flats for subsequent resale (so liable for income tax rather than CGT).
The first completed flat (flat 1) sold in December 2017, but at this stage we had technically not realised a profit, as the sale proceeds from flat 1 were less than our total costs to date, although we did of course still jointly own the newly created flat 2.
The second flat (flat 2) was then sold in May 2018 (i.e. in the next tax year) at which stage we realised a net profit for the overall project.
We are now completing our personal tax returns for 2017 / 2018 and have a question as to how we report the profit from this project for income tax purposes. I think there are 2 possible options:-
1. Report no profit for the 2017/2018 tax year, as we had not yet made a profit from the project, given that as at YE 4/2018 our costs exceeded the sale proceeds received from flat 1. Then report the final true total profit in our 2018/2019 tax returns
2. Try to split the costs to YE 4/2018 between the 2 individual flats (which would be very difficult to do accurately, as they were not of equal size, number of bedrooms, value etc) and try to calculate a theoretical profit for flat 1 in isolation.
Which would be the correct way to report the profit from this project in our tax returns?
Many thanks
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