My wife and I live in a double fronted upper maisonette in a 4 storey terraced house. We have lived there as our PPR for 10 years and we are both higher rate tax payers.
The lower ground flat is coming on to the market for sale and we are thinking about buying it. If we bought it then we would end up owning the entire building, albeit comprising a freehold title and 2 leasehold titles for the maisonette and ground floor flat.
If we owned the entire building we would consider splitting the property vertically into 2 houses. This is how the property originally was prior to someone knocking through the party wall many years ago. We would live in 1 house and potentially rent the other one out for a period, although it is likely that within a few years we will want to move. When we do decide to move then we might just sell everything or we might rent out both houses and sell them several years down the line.
Under all scenarios (1 house / 2 houses / 2 flats) there will be significant construction costs involved.
We could of course just keep the property as one giant house, but it’s current market value would be around £1.2m, whereas the 2 houses combined could be around £1.7m. If we just kept the property in it’s current format as 2 flats then the market value would be around £1m.
We want to minimise our tax liability when we do eventually decide to sell. So my questions are:
1) Is there anything we should do when buying the lower flat to minimise our future tax liability?
2) Is there anything we should do when dissolving the existing titles and creating 2 new freehold titles to minimise our future tax liability?
3) Would we be considered to be property developers by HMRC for doing this?
Sorry if this question has already been asked, and for the vagueness of my questions. I did search the forum for similar situations, but the only post I could find that was close to our situation was http://www.taxationweb.co.uk/forum/subd ... 87-10.html