Property trade and NI

[cascas]

Previous tax year, income from rental income only, and no NI was due. Last year, there was a single property trade, that would be subject to IT rather than CGT. This would also incur a class 4 NI liability.

Should class 2 also be paid? Is so, for what time period and the profit was incurred on a single trade? Can class 2 be paid for the last tax year, at the same rate?

[bd6759]

It is a simple question of fact. You are either carrying on a trade of buying and selling properties or you are not. Class 2 is payable if you are carrying on a trade, regardless of the number of sales you have (although there is an exemption for small profits).

You are liable to class 2 from the date your trade commences until the date it ceases. It is not tied to a specific transaction. If you buy one property, renovate it and sell it, then buy another a property, renovate and sell, and so on, that is a continuous trade even if there is a gap between one sale and the next purchase, and class 2 is payable throughout the period.

I might add that the purchase and sale of a single of property is unlikely (but not impossible) to be trade.

[cascas]

It is a simple question of fact. You are either carrying on a trade of buying and selling properties or you are not.I might add that the purchase and sale of a single of property is unlikely (but not impossible) to be trade.

As a landlord, properties are purchased with the intention of adding to the rental portfolio. However, year ago property was purchased and refurbished over a period of approx 6 months. It was then decided that other properties could be purchased that would provide a better rental yield, it was then decided to sell the property, without renting.

In this case, is treating as a trade incorrect?

[bd6759]

That doesn't sound like a trade. A trade is generally where you acquire or create something for resale. If you bought the property with the intention of adding it to your portfolio and later changed your mind, it will be liable to CGT. It is a question of fact and degree, and how often you your sell properties will be crucial.

[King_Maker]

Although Class 4 NI is applicable only to trades, Class 2 NI is applicable to businesses. So the latter could apply to a property rental business in the appropriate circumstances.

[cascas]

That doesn't sound like a trade. A trade is generally where you acquire or create something for resale. If you bought the property with the intention of adding it to your portfolio and later changed your mind, it will be liable to CGT. It is a question of fact and degree, and how often you your sell properties will be crucial.

To me, I find it hard that is is a question of fact and degree, and not particularly clear cut. To put into context this is only the second disposal. In 2011, we purchased a property with the intention to add to the increasing portfolio. We then changed our mind, a purchased a 3 bed detached on the same day for the same value which became the rental (as a 3 bed detached would achieve a higher yield over a 2 bed semi, and is remains part of out portfolio). This disposal was treated as CG.

[alieen]

Previous tax year, income from rental income only, and no NI was due. Last year, there was a single property trade, that would be subject to IT rather than CGT. This would also incur a class 4 NI liability.
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