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Where Taxpayers and Advisers Meet

CGT and other Tax Fees on renovation project

Michael2374
Posts: 20
Joined: Fri Mar 18, 2016 3:39 pm

CGT and other Tax Fees on renovation project

Postby Michael2374 » Tue Jan 24, 2017 12:00 pm

Hi,

I bought a property at auction 20th July 2016. Its a one bed L/H flat with 125 yrs left on lease. It was in a dilapidated stated when i bought it so i have completely gutted it remodelled and rebuilt it. I now wish to sell it and I'm wondering how much CGT and other costs I'll have to pay and also if any of the costs for renovation can be used in this years tax return that i still need to do.

My particulars are
Married Home Owner
F/T Job = £31k p.a
Rental income from other mortgage free property £14,400 p.a
Purchase of new flat (at auction) £109k including sol/auctioneer/SDLT fees (20th July 16 completion date)
Cost of refurb incl new kitchen, bathroom, flooring, heating system, plumbing, electrics etc £12,000
Proposed Sale price £175,000

Any advice/opinion would be greatly appreciated

Thanks

pawncob
Posts: 4392
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: CGT and other Tax Fees on renovation project

Postby pawncob » Tue Jan 24, 2017 9:28 pm

It looks like you bought it with the intention of selling it at a profit, so it's not CGT, it's trading. All costs incurred are allowable and the profit is taxable as income.
With a pinch of salt take what I say, but don't exceed your RDA

Michael2374
Posts: 20
Joined: Fri Mar 18, 2016 3:39 pm

Re: CGT and other Tax Fees on renovation project

Postby Michael2374 » Wed Jan 25, 2017 12:59 pm

It looks like you bought it with the intention of selling it at a profit, so it's not CGT, it's trading. All costs incurred are allowable and the profit is taxable as income.
yes that's the aim - thanks for the heads up.. someone mentioned if i had set up as a 'property developer' i would have just paid a corporation tax?? Instead of what is going to be 40% on the profit..! is that correct and would this be a good route to follow if i plan to do this again in the future?

Thanks for any advice/help

pawncob
Posts: 4392
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: CGT and other Tax Fees on renovation project

Postby pawncob » Wed Jan 25, 2017 1:09 pm

You'll only get C.T. tax rates if you incorporate.
With a pinch of salt take what I say, but don't exceed your RDA

Ian McTernan CTA
Posts: 1232
Joined: Wed Aug 06, 2008 3:02 pm
Location: Bedford
Contact:

Re: CGT and other Tax Fees on renovation project

Postby Ian McTernan CTA » Wed Feb 01, 2017 2:18 pm

There are new rules concerning development property which boil down to HMRC trying to charge more developers to income tax where previously they might have snuck in under CGT.

Your case is quite clear- your intention has been to buy, develop and sell. That is a trade. If you have not previously registered with HMRC then you would need to do so. Tax and NIC will be due on the profits, so budget accordingly!

If you do not need the profits or are seeking to re invest the profits then you would generally be better off operating your development business through a limited company as this has a lower tax rate which means you retain more cash for the next one- but beware of the tax charges on extraction of the funds from the company.

I'd suggest you seek professional advice and get yourself set up properly.
McTernan Associates Ltd
Chartered Tax Advisers
Bedford
Email through link on website:
http://www.imcternan.com

Michael2374
Posts: 20
Joined: Fri Mar 18, 2016 3:39 pm

Re: CGT and other Tax Fees on renovation project

Postby Michael2374 » Wed Feb 01, 2017 5:00 pm

There are new rules concerning development property which boil down to HMRC trying to charge more developers to income tax where previously they might have snuck in under CGT.

Your case is quite clear- your intention has been to buy, develop and sell. That is a trade. If you have not previously registered with HMRC then you would need to do so. Tax and NIC will be due on the profits, so budget accordingly!

If you do not need the profits or are seeking to re invest the profits then you would generally be better off operating your development business through a limited company as this has a lower tax rate which means you retain more cash for the next one- but beware of the tax charges on extraction of the funds from the company.

I'd suggest you seek professional advice and get yourself set up properly.
Thats a very informative answer - thank you for the steer..! I guess i'll have to take the 40% hit on this one and look into LTD co's going forward - thank you.

section 44
Posts: 4468
Joined: Thu Oct 30, 2008 12:47 pm

Re: CGT and other Tax Fees on renovation project

Postby section 44 » Thu Feb 02, 2017 10:29 am

national insurance?


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