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Where Taxpayers and Advisers Meet

Property Developing across tax years

property1972
Posts: 1
Joined: Fri Nov 08, 2019 4:43 pm

Property Developing across tax years

Postby property1972 » Fri Nov 08, 2019 4:52 pm

HI, i am new to this board so apologies if this has been covered before. I purchased a property in Jan 2018 with a view to renovating it and selling it. The property eventually sold in August 2018 and i plan to include this on my 2018/19 self assessment tax return. However with the purchase of the property and a large chuck of the expenditure being in the 2017/18 tax year is it correct to include this all in this years Tax return? i will be buying more houses and therefore the buying and selling process will cover different tax periods. So in essence what i am hoping to do is align all the costs to the ta year the property sold in. This is going through as Income Tax not CGT.

Lambs
Posts: 1429
Joined: Wed Aug 06, 2008 3:15 pm

Re: Property Developing across tax years

Postby Lambs » Fri Nov 08, 2019 5:38 pm

P,

It is unclear if this property the subject of your post is the first such property that you have 'done up' to sell on, or one in a series. The relevance is that for a trading entity (and you seem in my opinion correctly to have recognised that this is an income / trading venture, rather than being capital in nature, primarily because you bought with the intention of selling it on at a profit) trading itself is deemed to commence only when the taxpayer is in a position to fulfil orders / contracts. Until you had a house to sell and were actively marketing it, you were not trading. Therefore if this were your first such venture then the commencement rules would apply such that the expenditure would effectively "roll up" to the point that you were in a trading position - expenditure physically incurred before trading would for tax purposes be deemed to have been incurred on the first day of trade.

The rules work differently for an ongoing activity, where expenses are generally recognised as they are incurred. This is a significant over-simplification, since there would be accounting adjustments to recognise expenditure added to work in progress as a current asset, etc., (rather than to deduct expenses from income that has not yet arisen) but those expenses would have been returned in accounts for the previous period in 2017/18.

These rules are further complicated by the new "cash basis regime" where normal accounting practice is largely ignored.

Do you have an accountant or tax adviser who prepares accounts / tax returns for you?

Kind regards


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