income tax or capital gain tax

[carne-london]

hi guys
this may seem long question but i think its best if i explain full details so i can get your help out their. I bought properties between 2005 and 2008 and sold.

break up as follow:

property no.1: bought in june 2005 for £140,000.00 building worked done = £35,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in Jul 2006 for £220,000.00 legals, stamp duty, agent fee letting agent fees, broker , selling fee etc = 8500.00
net profit: 28,000.00

property no.2: bought in jul 2006 for £190,000.00 building worked done = £31,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in dec 2006 for £250,000.00 legals, stamp duty, letting fees, broker , selling fee etc = 12,000.00
next profit: 15,000.00

property no.3: bought in Aug 2007 for £185,000.00 building worked done = £18,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in aug 2007 for £220,000.00 legals, stamp duty, agent fee letting agent fees, broker , selling fee etc = 8,000.00
next profit: 10,000.00
property no.4: bought in sep 2007 for £207,000.00 building worked done = £20,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in oct 2007 for £250,000.00 legals, stamp duty, agent fee letting agent fees, broker , selling fee etc = 1200.00
net profit: 25,000.00

property no.5: bought in may 2007 for £240,000.00 building worked done = £34,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in jul 2007 for £250,000.00 legals, stamp duty, agent fee letting agent fees, broker , selling fee etc = 16,000.00
next loss: 40,000.00

property no.6: bought in Aug 2007 for £185,000.00 building worked done = £18,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in aug 2007 for £220,000.00 legals, stamp duty, broker , selling fee etc = 8,000.00
next profit: 10,000.00

property no.7: bought in sep 2008 for £160,000.00 building worked done = £12,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in oct 2008 for £185,000.00 legals, stamp duty, agent fee letting agent fees, broker , selling fee etc = 6,200.00
net profit: 7,000.00

property no.8: bought in aug 2008 for £160,000.00 building worked done = £34,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in sep 2008 for £215,000.00 legals, stamp duty, broker , selling fee etc = 16,000.00
next loss: 40,000.00

property no.9: bought in Aug 2008 for £123,000.00 building worked done = 19,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in sep 2008 for £180,000.00 legals, stamp duty, broker , selling fee etc = 16,000.00
next profit: 25,000.00

property no.10 bought in sep 2008 for £190,000.00 building worked done = £27,000.00 (kitchen, bathroom central heating, double glazing etc)
sold in oct 2008 for £235,000.00 legals, stamp duty, broker , selling fee etc = 14,000.00
next profit: 5,000.00

property-1 and property-2 should they come under Capital gain tax? (as i did rent them out)
now i have done my returns and i calculated my tax at £27,000.00 but now the taxman has come back to to say that i owe more as he ignored my building works. i was told by accountant as as i was being considered s a developer and my building cost (enhancement cost) will not be deducted. How can i get my building work cost get included? if this is the final position in my tax issue then i will go broke. please help and advise.

[AvocadoK]

The pattern of transactions makes it clear that all the profits are trading profits. The fact that some rental income has been received does not prevent the transactions being trading. All of the costs of purchase and refurbs are allowable.
Even if CGT treatment applied, the purchase/refurb costs would be allowable in calculating the gain.
Someone has got a crossed wire somewhere. Either that or you need a better accountant!

[carne-london]

thanks for your reply

please advise if i do not get charges for cgt and i am charged for income tax can i still deduct cost spent on kitchen, bathroom , central heating, decorating, doors, skirting, skimming etc.
please help as i have a meeting with accountant on tuesday and need to throw some questions to him.

the diference is huge with refurb expenses included cgt tax comes to around 20,000 without refurb cost its over 100,000

the diference is huge with refurb expenses included income tax comes to around 30,000 without refurb cost its over 100,000

please help and advise

many thanks

[robbob]

Doh - where did this thread come from

[AvocadoK]

Your understanding is correct.

Basically, income tax is payable on profit, which is the difference between what you receive and the expenses you incurred.
CGT is payable on gains - which are the difference between what you receive and the expenses you incurred. Your accountant may be getting confused about capital expenditure, which is not allowable in computing trading profits. In your case, all the expenditure is on items of trading stock, not capital items. So it is allowable. By contrast, someone buying and refurbing property in order to let it, will not get the refurb allowed against his business profit. As long as your intention was to turn it round and sell it, it is a trading transaction, even if you let it temporarily.

[carne-london]

hi guys

avocadok thank you very much ...you have made this so clear and i cannot thank you enough....as i been stressed out since i got the letter from hmrc....i will noww have a meeting with my accountant on tuesday and will be able to speak to him with confidence with the advise given by you guys........just one more bit of query (as it seem you are well knowledge in this field compared to me) where or under what section does this come under tax law if i need to argue it with hrmc then i can quote a particular section in the hmrc clauses.


again i really really am grateful for this priceless help you guys given me.


thank u