I'm contemplating buying a run down house to revamp and sell on, I'm going into this with a mate of mine (workmate over the past few years)

Were not going in blind, both with trades (Plumber & Joiner) so the revamp doesn't concern us, what doe's concern me though is the capital gains tax and any other costs.

I'm just curious if anyone on here had done this and has any advice for me.

Thanks

Have you done anything similar? There are a lot of small things that add up to a large cost.

FYI I am a QS

How many properties are you planning on doing in a year?

How much profit are you expecting to make on each property?

Would it not make sense for one of you to move into the property as your home whilst the refurb is ongoing?

My morgage was cheaper doing it as a live in for 3 months then I could sell or could rent out, why sell in such a low market. Why not let out ?

I have a few places, but keep and rent out.

However, I understand there are 2 tax systems. One is where you buy as investment, and sell at a later date, which will mean capital gains tax.

The other is if you turn a lot around you pay income tax.

If you buy, "live" in it and sell, no tax due (obviously you can't write costs off against profits either, but as you are not paying tax etc)

2 people =double the opportunity


Not sure on how long you have to own the place either. If you do it a lot, the taxman will get interested, but one every 2 years each should be fine. You really need expert advice though.

Finally, my view is that old one. Buy the worst place in the best area. Spend £25k on a £100k house, make a bit of profit. Spend £25k on a similar sized £250K house= a lot more profit.

Take out cost of buying the property, any interest on loans to buy it materials and your wages, any legal expenses, you taxed on net profit
If you rent the property for 5 years you only pay tax on the rent
But you should fully consult accountants and tax experts before you start.

Thanks for the reply's.

I've never done a house personally (IE buy to sell). With my trade I've done lots of houses for various people throughout the years and can turn my hand to most aspects of the building trade to an extent.

I've bought houses in the past to live so I'm aware of the legal fee's etc.

The plus side for me is, we don't require a mortgage, we have the purchase money and renovation money sitting.

So if were going to be doing say 6 of these a year we would really need to set up in business (speak to someone professional) but as stated were going to be paying tax on profit only.

Mr Luke,

When you say there's lots of small things to add, do you have a few pointers just to see if I have allowed for these ?

Thanks

I've done this a no. of times.

First buy the property in yours your business partners & both respective wives names if applicable, I always buy property in my wifes name & mine, you then get double the capital gains limit on sale (you could get 4x with 4 names), you'd need to talk to an accountant for accurate figures, but you can perfectly legitimately & legally take over £20k as a capital gain between you & spouse (or business partner) without paying a penny of tax.

Once you're over that limit I believe tax regime changed recently so talk to accountant

Yes, small things add up, & you will invariably find costs you'd not budgeted for, so essential there is a decent margin in the property b4 you start, difficult to make significant gains in the current market & you might be better to do one up, then get buy to let mortgage to get your investment back & take rental income, use the mortgage money to buy the next one & so on, if you just sell one or 2 a year most of your capital gain will be tax free. You can even sell the property to "yourself" as a ltd company which can have tax gains if you are talking several properties - again you need to talk to a good accountant who deals with ltd companies & knows the loophioles - there are some really weird tax rules affecting capital gains - more particularly on commercial properties, but still worth taking advice on residential

As I asked earlier, how much profit are you expecting to make in a year?

This is the most important question to answer, depending on your answer then most of the replies in this thread may be incorrect.

Speaking as an accountant you have to be clear what you are doing.

2 simple scenarios:

If you buy a property with a business partner with the intention of doing it up and renting it out, then you change your mind and sell it, you will pay capital gains tax on the gain in the formula: half of sale price less half the cost to purchase and do it up less annual allowance of approx £10K. The tax will be either 18% or 28% depending on your current annual income.

If you buy a property with a business partner with the intention of doing it up and selling it, then you are trading and should usually either be registered as a partnership or buy it through a limited company.

Of course there is a grey area as to what your intention was, whether you've done it before etc etc. That risk is down to what you and your business partner accept to take. If you are looking at multiple properties, then my advice would be to set yourself up as a business from the start.

If you are looking at continual reinvestment of profits, a limited company is likely to be a better route to take. Although there are lots of other factors to consider.

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Originally posted by russbost


Yes, small things add up, & you will invariably find costs you'd not budgeted for, so essential there is a decent margin in the property b4 you start, difficult to make significant gains in the current market & you might be better to do one up, then get buy to let mortgage to get your investment back & take rental income, use the mortgage money to buy the next one & so on, if you just sell one or 2 a year most of your capital gain will be tax free.

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That's magic chaps, makes a little more sense now.

As it stands just now we have no intention of buying to let but as stated above by Russ, it would make good sense if the property doesn't sell to take a buy to let mortgage to release the initial capital to move on to the next project.

I think to begin with we would take as little a wage as possible from what ever profit we could make with a view to re investing what ever is left over.

[Edited on 27/9/12 by craig_007]

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Originally posted by JonnyS

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Originally posted by russbost


Yes, small things add up, & you will invariably find costs you'd not budgeted for, so essential there is a decent margin in the property b4 you start, difficult to make significant gains in the current market & you might be better to do one up, then get buy to let mortgage to get your investment back & take rental income, use the mortgage money to buy the next one & so on, if you just sell one or 2 a year most of your capital gain will be tax free.

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I'm not saying you can't do that (and I don't know all the facts about your precise circumstances), but you have to be very careful about how you go about the scenario you describe. It would be quite easy to land yourself with a massive tax bill if you are not clear about what you are doing and be able to demonstrate the reasoning behind it

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I believe if the intention is to buy/sell property, you can't claim capital gains allowance ( same as a shop selling baked beans, they can't claim the capital gains allowance for their profits, over simplifying, but you get the idea)
If you buy a house as an investment ie rent out, then when you sell it it is capital gains.

regular buying/selling will be taxed as income. Needs serious advice. Especially with partners and big money involved.

quote:

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Originally posted by cliftyhanger
I believe if the intention is to buy/sell property, you can't claim capital gains allowance ( same as a shop selling baked beans, they can't claim the capital gains allowance for their profits, over simplifying, but you get the idea)
If you buy a house as an investment ie rent out, then when you sell it it is capital gains.

regular buying/selling will be taxed as income. Needs serious advice. Especially with partners and big money involved.

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Yep, I'm going to get in contact with an accountant at the start of next week to get a few pointers and see what our next move is.

I don't think for a minute it will be a breeze, if that was the case there would be a dam site more people trying to punt property on at a profit.

The situation we are both in with our own trades leaves us no option but try to create our own work.

Time will tell I dare say !!

[Edited on 27/9/12 by craig_007]

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Originally posted by JonnyS

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Originally posted by cliftyhanger
I believe if the intention is to buy/sell property, you can't claim capital gains allowance ( same as a shop selling baked beans, they can't claim the capital gains allowance for their profits, over simplifying, but you get the idea)
If you buy a house as an investment ie rent out, then when you sell it it is capital gains.

regular buying/selling will be taxed as income. Needs serious advice. Especially with partners and big money involved.

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Correct, this is why Russbot is wrong. You have to be so careful with these situations. As noted, Russbot may be doing nothing wrong, but it could easily be construed a different way. That's why these situations need input from an accountant.

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Most of the information in this thread is completely wrong. Ignore it all and speak to a Tax Accountant.

If you need any specialist tax advise drop me a U2U.

Might just do that mate.

Thanks for the offer.

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Originally posted by russbost

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Originally posted by JonnyS

quote:

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Originally posted by cliftyhanger
I believe if the intention is to buy/sell property, you can't claim capital gains allowance ( same as a shop selling baked beans, they can't claim the capital gains allowance for their profits, over simplifying, but you get the idea)
If you buy a house as an investment ie rent out, then when you sell it it is capital gains.

regular buying/selling will be taxed as income. Needs serious advice. Especially with partners and big money involved.

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Correct, this is why Russbot is wrong. You have to be so careful with these situations. As noted, Russbot may be doing nothing wrong, but it could easily be construed a different way. That's why these situations need input from an accountant.

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You are either both not understanding the situation & are misguided or you are both just plain wrong. I am talking about buying & selling as a personal business, ie sole trader/partnership in which case you have a PERSONAL allowance of £10600pa (2011/12) it is no different to the fact that you can earn £10k or thereabouts before you pay any tax on PAYE or whatever, it is an allowance given to you by HMRC.

From the government HMRC website

"Tax-free allowances for Capital Gains Tax

The annual tax-free allowance (known as the Annual Exempt Amount) allows you to make a certain amount of gains each year before you have to pay tax.

Nearly everyone who is liable to Capital Gains Tax gets this tax-free allowance."

So perhaps b4 you make wild statements that I am wrong you might choose to get some facts rather than hearsay. I have bought & sold a number of houses, I've paid capital gains on some in varying amounts & not on others, all sorted & agreed with HMRC or I would hardly be putting it on a public forum. The only common exception I can think of is if you are not UK domiciled, then you lose the allowance.

If however you run things as a ltd company it is the company that has the tax liability not yourself, IIRC there are NO capital gains reliefs for a company, in the example I gave above where you buy as a partnership then get a buy to let loan as a ltd company & sell the property to your own company (has to be sold at "market rate" you may have no capital gains tax to pay at all as an individual depending on the sums involved, but when the company sells the property some years down the line it may get a substantial capital gains tax bill - hence why I suggested seeking advice from an accountant well voiced in these matters if you were to embark on such a scheme.

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Originally posted by BangedupTiger
Most of the information in this thread is completely wrong. Ignore it all and speak to a Tax Accountant.

If you need any specialist tax advise drop me a U2U.

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No experience with property buying/selling, but having recently gone through buying (with others) my previous employer after they went bust last year I can only echo the advice of contracting an experienced tax accountant to deal with these matters. Be completely honest with them about your situation and intentions and if they're any good they should achieve the best outcome for you. At the very least they will keep you on the right side of the tax man!