tony_ mort Posted August 5, 2007 Report Share Posted August 5, 2007 Hi Plym, I hope you can help: About 3 months ago I bought 2 properties from homeowners wanting to move quickly. After renovation I've just exchanged contracts for the sale of the final one. This has given a net profit of £50,000, comprising gross profit of £60,000 less £10,000 capital costs. Three questions: 1. My understanding of this area of tax law is a bit sketchy; but having bought the properties in the names of my wife and myself, and were we to have no other capital gains before next April, would this be free of tax? 2. Should we wish to do this again year on year, would our position change, or would this still be a capital gain? i.e. Would the I.R. start to take a dim view!?! 3. Have you any view on how we should structure a business (including 2 teenage sons) if we were to run this full time? Many thanks, Tony Link to comment Share on other sites More sharing options...
plym77 Posted August 7, 2007 Report Share Posted August 7, 2007 Hi Tony For Capital Gains Tax, you must pay CGT on profits, so if your net gain is £50k, take off your two CGT A/E's (yours and your wifes) of £9,200 each leaving £31,600 chargeable to tax at 20% or 40% depending on other income. This would also use your CGT A/E's for the tax year and therefore any further 'disposals' would not receive a CGT A/E. I also assume by Capital Costs that you are excluding any interest paid on a mortgage, which is unfortunately not claimable for CGT purposes (I have assumed this is a pure 'buy to sell' with no buy to let) This said, be aware that what you are doing could constitute trade. If you purchase with a view to making a profit on sale (rather than purchase as an investment property for BTL for example) then this is arguably Schedule D income and therefore subject to income tax and national insurance. If you are planning to do this regularly then it is almost certainly a trade. The upside being more expenses are claimable (mortgage interest etc), the downside being that you dont get the CGT reliefs and allowances. If you are operating a trade then there are various structures that you can put in place (and I have done on many occasions) to minimise tax exposure but the structure would depend very much on your individual circumstances and aspirations so I am unable to give specific advice on this without knowing your case properly. The structures can't be put in retropectively though so if you are looking to do this on a more regular basis it would be better to look at structuring sooner rather than later as you cannot catch properties which you have already exchanged to sell. Should you be interested in looking at structuring further, do email me on sherena.glanton@horwath.co.uk and I would be happy to discuss this further with you. In the meantime, I hope that this information helps Kind regards Sherena Link to comment Share on other sites More sharing options...
plym77 Posted August 10, 2007 Report Share Posted August 10, 2007 Hi Tony Something else has occured to me... If indeed this is a Capital Gain then can you delay the sale until after 5 April 2008? and also, how old are your children? There is the possibility of effectively doubling the CGT annual allowance available by transferring shares of the property to your children in this tax year - enough to utilise your CGT Annual Exemptions for 2007/8, and then sell the property in 2008/2009. So for example, CGT Profit of £50,000 you and your wife transfer say a 38% share of the property to your children this tax year = £19k of the 'market value' gain- this would be covered by your CGT A/E's x 2. Then in 2008/2009 sell the property and make the £50k gain - your children own 38% and it is unlikely that there will be much CGT profit in their share due to the short time span of the ownership. you own bewteen you 62% = £31k gain, less two CGT A/Es (assume same as this year £9200 each), leaving a gain of just £12,600 chargeable. This has substantially reduced your potential CGT liability This said, I still think that you need to think about this one as to whether it is a capital or trade transaction, but for a capital transaction the above is quite a simple way to reduce CGT - and of course if one of you (you or your wife) is a higher rate taxpayer and the other is not, consider engineering the end ownership %'s between you so that more of the £12,600 gain is in the basic rate taxpayers name - inter-spouse CGT transactions are done at no gain/ no loss. I would if possible have the property as Tenents in Common with your wife. And the transfers to your children can then be done by Declaration of Trust - this is a simple document prepared by a solicitor and will avoid you having to go to Land Registry or your mortgage lender Hope this helps Regards Sherena Link to comment Share on other sites More sharing options...
tony_ mort Posted August 10, 2007 Author Report Share Posted August 10, 2007 Hi Sherena, Very many thanks for the information. I'm not going to be able realistically to delay the sales until after april '08, so it looks like we will take the tax liability on the chin! We haven't decided whether to formally continue this as a business - my wife feels that it is profiting from others misfortune (although it can be argued that it is a public service; especially if the alternative is repossession). If we do decide to go ahead, it strikes me that buying through a limited company may have benefits. If we decide to go for it I'll e-mail you. Thanks again, Tony Link to comment Share on other sites More sharing options...
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