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Proprty refurbishment. Best set up

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    Proprty refurbishment. Best set up

    Hi all

    we found a cheap flat that needs renovation. It is very poor state, but has good potential.

    What is the best setup to approach that given

    we will by in both our names - husband/wife. We can utilize capital gains of up to ~£22 000 per tax year tax free. The profit will most likely be < £22000.
    we have another property - 3% "fine" for 2nd home payable
    we pay with our saved money (i.e. all taxes have been paid)

    How do we approach this whole thing?

    As personal investment - so we pay property price + stamp duty + renovation labour + materials = total cost. And then hope to sell for total cost + X where X < £22000 so no CGT.

    As some kind of legal entity (ltd, ??), so we can claim the costs for renovation (and purchase?) and subtract from the profit after sale.

    What is the most tax efficient way?

    PS. If you have 1 property (property 1), buying a second one will cost you 3% more as SD. However if you sell the second property after say 6 months can you claim the 3% back. I know you can if you sell property 1 within 18(24) months, but can you do the same if you sell property 2?
    Last edited by kolata; 3 October 2016, 15:07.

    #2
    Originally posted by kolata View Post
    Hi all

    we found a cheap flat that needs renovation. It is very poor state, but has good potential.

    What is the best setup to approach that given

    we will by in both our names - husband/wife. We can utilize capital gains of up to ~£22 000 per tax year tax free. The profit will most likely be < £22000.
    we have another property - 3% "fine" for 2nd home payable
    we pay with our saved money (i.e. all taxes have been paid)

    How do we approach this whole thing?

    As personal investment - so we pay property price + stamp duty + renovation labour + materials = total cost. And then hope to sell for total cost + X where X < £22000 so no CGT.

    As some kind of legal entity (ltd, ??), so we can claim the costs for renovation (and purchase?) and subtract from the profit after sale.

    What is the most tax efficient way?

    PS. If you have 1 property (property 1), buying a second one will cost you 3% more as SD. However if you sell the second property after say 6 months can you claim the 3% back. I know you can if you sell property 1 within 18(24) months, but can you do the same if you sell property 2?
    You have 3 years to sell your additional property.

    My understanding is that cgt is personal so using a company would be outside that. You can deduct legitimate expenses from cg if they are valid.

    Have you tried your accountant? They should know the correct answers.

    Comment


      #3
      Buy Deutsche Bank shares with that capital instead. It's going to shoot up now that the Germans have made it clear it's 'too big to fail'.
      "Never argue with stupid people, they will drag you down to their level and beat you with experience". Mark Twain

      Comment


        #4
        There will be a reason it's cheap....... Do you mean it's appropriately priced for the condition it's in?
        'CUK forum personality of 2011 - Winner - Yes really!!!!

        Comment


          #5
          Property "buy/refurb/sell" profit counts as income tax i.e. no CGT allowance.

          Unless you hold it for a while & rent it out, in which case it seen as an investment and hence liable to CGT at 18% or 28% depending on your overall income for the FY.

          So you either hold it and rent it out for 6 months or so, or use a separate Ltd Co for this purpose, or keep your income from other sources as low as possible and allow the property sale profit to be chargeable under income tax.

          You cannot claim SDLT back unless it's your primary residence.

          Also check the remaining lease length on the flat. Too low and it'll be hard to sell unless you get it renewed at purchase.
          Last edited by ChimpMaster; 3 October 2016, 20:08.

          Comment


            #6
            Originally posted by ChimpMaster View Post
            Property "buy/refurb/sell" profit counts as income tax i.e. no CGT allowance.

            Unless you hold it for a while & rent it out, in which case it seen as an investment and hence liable to CGT at 18% or 28% depending on your overall income for the FY.

            So you either hold it and rent it out for 6 months or so, or use a separate Ltd Co for this purpose, or keep your income from other sources as low as possible and allow the property sale profit to be chargeable under income tax.

            You cannot claim SDLT back unless it's your primary residence.

            Also check the remaining lease length on the flat. Too low and it'll be hard to sell unless you get it renewed at purchase.
            Are you saying that buy/refurb/sell in 2 months for X profit, the profit is income and taxed as such and not CG?
            But buy/refurb/rent/sell in 6 months for X profit and Y rent, the X will be CG (CGTA applicable) and the Y will be income and taxed?
            How is primary residence defined? I have house 1 as prim res now. Buy house 2 (pay 3% SDLT) and move to it, so house 2 is now prim res. Sell house 2 in 2-3-6 months. What about 3% SDLT?

            Any citation?

            Comment


              #7
              Originally posted by northernladuk View Post
              There will be a reason it's cheap....... Do you mean it's appropriately priced for the condition it's in?
              Let say it needs refurb, and the price will rise £15-20k after that.

              Comment


                #8
                Originally posted by kolata View Post
                Are you saying that buy/refurb/sell in 2 months for X profit, the profit is income and taxed as such and not CG?
                But buy/refurb/rent/sell in 6 months for X profit and Y rent, the X will be CG (CGTA applicable) and the Y will be income and taxed?
                How is primary residence defined? I have house 1 as prim res now. Buy house 2 (pay 3% SDLT) and move to it, so house 2 is now prim res. Sell house 2 in 2-3-6 months. What about 3% SDLT?

                Any citation?
                You would be best to speak to your accountant with actual figures, rather than discussing theoretical scenarios with a bunch of contractors.
                …Maybe we ain’t that young anymore

                Comment


                  #9
                  (Although the 3% levy is based on owning more than one property, not based on whether it is your primary residence or not, according to the government website)
                  …Maybe we ain’t that young anymore

                  Comment


                    #10
                    Originally posted by kolata View Post
                    Are you saying that buy/refurb/sell in 2 months for X profit, the profit is income and taxed as such and not CG? CORRECT
                    But buy/refurb/rent/sell in 6 months for X profit and Y rent, the X will be CG (CGTA applicable) and the Y will be income and taxed? CORRECT
                    How is primary residence defined? I have house 1 as prim res now. Buy house 2 (pay 3% SDLT) and move to it, so house 2 is now prim res. Sell house 2 in 2-3-6 months. What about 3% SDLT?

                    Any citation?
                    Primary residence terminology was perhaps misleading. If you already own another property (your own residence or BTL) then you will pay 3% SDLT surcharge on any further purchase. You cannot escape it in this case and investors are having to price in the extra tax to see if the numbers still work. Reduce your offer if the numbers don’t work.

                    Comment

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