Investment Property CGT Scenario

[ssmyth]

In 2013 I purchased a residential investment property in my own name that has been rented out since. I shall shortly be terminating the tenancy as the time has come to sell the property with vacant possession. When the tenants have moved out and before putting the property on the market for sale, some modernisation works will be required to make it a saleable family home - general modernisation works, new bathrooms, new kitchen, replace leaking conservatory with extension.

Can I clarify that the sale would be subject to CGT and not IT? I am thinking specifically in relation to me undertaking these modernisation works prior to sale, as I wouldn't want to be accused of being a property developer. and subject to IT. Any advice would be greatly appreciated.

[maths]

Yes, any profit on sale would be a capital gain. You would not be treated as a trader.

[ssmyth]

Thanks for your reply. Just so I understand CGT, is your clear cut answer based on the fact that the property was initially purchased with the intent of it being an investment property and has been rented out for some time and therefore the "modernisation works before selling" would be reasonably expected to be done by a property investor?

[bd6759]

If you have an existing trade where you renovate properties for resale, this activity could be seen to be an extension of that activity.

As always, the answer falls on an analysis of all of the facts.

There are 9 "badges of trade". These are the things that the courts look at to determine if an activity is in the nature of trade.
There are at least 2 here that are met: modification of an asset, and profit seeking motive. If we find that you have an existing trade of this nature, or if you have done this more than once before, we are straying into the trading activity.

[maths]

Given the property was purchased for letting purposes (ie investment not trade) coupled with the fact it has in fact been let for 7 years or so and there work now to be carried put has as its purpose ensuring that it can be marketed as a family home (ie not for rental) and n opt with a sole p[urp[oses to make a profit it is highly unlikely this will constitute a trading transaction ir any gain subject to CGT.

Bd refers to the badges of trade. Applying these, again, is unlikely to result on a trading transaction classification .

I am assuming that you are not a property developer or property trader re other properties you do own or have owned.