buy to let: tax implications?

[Man at B&Q]

Is the wrong answer if HMRC decide you are doing it to make money.

A one-off might be OK, but a serial doer-upper is operating as a business and will pay income tax.

MBQ

[GB]

I agree. It's just an attempt to fudge the original mistake in paying too much or doing the refurb over budget.

There's a further point, which is that a newly refurbed property will generally sell at a premium price, because of the crisp new look of the place. If you rent it out for a couple of years, it's bound to look rather tired, and there will be reasonable wear and tear. hence you lose that premium price.

I would say that you should make sure that what you do is commercial, and worry less about the tax side. So, decide before you start whether you are going to be a property developer or a landlord. The sort of property you would buy to let is entirely different from the sort you would buy to refurbish and sell on. If you want to let it, you probably need the property to be near transport, whereas that is less important for sale to an end user ? that is just an example of the sort of conflict you need to resolve.

[Stephen]

So if you intend to sell within three years, you don't really need to include your partner as you will be CGT exempt anyway?

How soon after buying it can you sell and attract CGT rather than income tax? 6 months? A year?

Thanks, Stephen.

[David WE Roberts]

Not sure that we are on the same idea here. I don't think you have the option to chose between income tax and CGT - it should be income tax on the sale or income tax on the rental income.

There are two seperate tax regimes - renovating property and renting property.

What I think happens is:

If you buy to do up and sell then it doesn't matter how quickly or slowly you sell any profit is treated as income and CGT doesn't come into it (but see below).

If you buy to rent then (apart from the time you spend doing the place up) you should not have any liability for CGT when you sell.

However if you buy, do up, rent for six months, sell, buy another, do up, rent for six months, sell then I think HMRC would view that as you trying to avoid income tax on the sale by disguising the fact that you are a property developer.

However if you buy and rent for a few years then sell on this may well be O.K. You need to talk to a tax adviser who specialises in this field and who knows the case law associated with the tax regimes. Which is obviously not me.

I think I see where you are coming from though - buy somewhere and do it up then pretend it is a second (holiday) home then sell after a while without renting. If it was truly a second (or holiday) home then it would attract CGT. You might get away with this once, but as I understand it you are hoping to go into property as a business and give up your job so this kind of scenario will be difficult to carry through convincingly without being treated as a tax dodger.

It will also limit your turnover if you buy and hold but don't rent - you will have your capital investment tied up and won't have any income from the property. Possible if you are capital rich and it is a rapidly rising market, but I suspect that neither of these apply.

AIUI there are two main ways to make money on property - renting and renovating.

For renting you need to build up your housing stock by releasing the equity in your current property(ies) by borrowing money then invest this in more property, gradually building up a portfolio of rental properties. You would generally view each property as a long term investment.

Alternatively you buy, renovate and sell. In this case to make money you have to churn, churn, churn. Buy the property, renovate, sell and buy the next one. The more properties you turn over in a year the more money you can potentially make.

Buying a property and holding it long enough to attract CGT not income tax, but not renting it out, doesn't fit either of these scenarios.

HTH

Dave R

[djc]

On 13/11/12 07:15, Stephen wrote: [...]

[...]

Property market must be picking up if people are coming here asking these sort of questions again. I thought the obsession with making money from property might have died after the recession of 20 years ago; instead we have 'buy to let'. The present recession just seems to b reinforcing that. If you are renovating a house, what is the market for it. Will you renovate it for owner occupation or expect a buy-to-let buyer? If the later then your options remain open when the renovation is complete.

Do you already own a house? If not then you could live in in it: CGT would not apply to a sole or main residence.

[bert]

In message , Stephen writes

"Beneficial Owner" is a concept to present blatant manipulation to avoid tax and not something to worry about if you behave in a straightforward way. Which route to go down sales v rental depends on how quickly you want to recoup any capital outlay including repaying any loans. Mortgages are long term loans and it can be costly to repay quickly.

If you are renting then mortgage/loan repayments are a cost which can be offset against rental income and so reduce your tax obligation. So do you want quick return of your capital based on the increase in value by upgrading or are you happy to take rental income and hope for eventually a greater increase in capital value over a number of years. With current low interest rates that may be a viable option but if rates rise say after 2 years you may find it not worth the hassle.

Depends also what area you are in and what type of tenants you are likely to attract for the type of property. One bad tenant trashing the property can make a big difference.

[mogga]

It is crazy. The expectations of years of watching Homes under the hammer, Lx3, Rx2, Property Ladder etc. Even Kirsty and Phil fail hugely and regularly are shocked that people want to pay less than asking price.

Useful addons for anyone wanting to browse rightmove though:: Property bee for firefox is very nice though to install. Property Track for Chrome.

[Man at B&Q]

It's not as simple as that. Everything hinges on which is your "main residence". Relief from CGT for a property that has been let is limited to =A340K and only applies if the property has been you main residence at some time. Any period as "main residence" is exempt. Also if make it your main residence before selling you can extend that period to cover the last 3 years before the sale.

There are various ways for a property to become your "main residence" but simply living there may not be sufficient for HMRC. You need to nominate it within two years of purchase, or show intent, e.g., by getting on the electoral roll at the new address, etc., ...

MBQ

[tim.....]

Not correct

Letting relief is limited to 40K but there are other reliefs you can claims as well.

I thought letting relief was only available if it was your main home

*before* any period of letting (BICBW). < Any period as "main residence" is exempt. Also

You do not need to do this if it was your main home before you let it.

No you don't. Your PPR for tax purposes (at any one time) is the one that you nominate from those houses which you own which are available for your own use. There are no other qualifying criteria that the revenue can use to reject your nomination.

Of course if you fail to make a nomination then those things will be taking into account when the revenue decide for you.

tim

[Man at B&Q]

[e-mail]...

That sounds like relief "for a property that has been let"

Specific to letting?

Oh FFS Did I say you "need" to? I said *if* on the grounds that the "final 3 year" rule can be quite advantageous.

*If* you make a nomination.

Indeed. I listed alternatives. The alternating to nominating it being consideration of the other things.

Thanks for confirming what I said, though I fail to se why you need to say it such a disagreeing way.

MBQ

[tim.....]

messagenews: [e-mail]...

they don't need to be specific to letting to make your statement "Relief from CGT for a property that has been let is limited to £40K" to be wrong (due to ambiguity), and that is the mistake that you are making here

tim

[The Other Mike]

WTF are Lx3 and Rx2?

[polygonum]

Location, Location, Location Relocation, Relocation

[mogga]

ty.

:) That's thank you for those who don't know.

[Andrew Gabriel]

When I looked at this, it was 3 years, but not the last 3 years. It was the first year and last 2 years, or the first two years and last year, I forget which way around. Also, at the end of the first year, you needed to inform the IR which is your main residence, or they reserved the right to decide for you.

There was a notable exception - if you end up with 2 properties due to marriage, then the CGT exempt period is only 6 months.

However, this was all before the CGT changes a few years ago, and I don't know how much of it still stands today.