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taxadvisor.uk, Chartered Certified Accountant
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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3 partners plan to jointly purchase a small property, renovate

Resolved Question:

3 partners plan to jointly purchase a small property, renovate it and then sell rapidly for a capital profit. How can we establish a business structure whereby any profit is treated as a capital gain ( for which we each have the usual tax free allowance) rather than income on which all the partners are higher rate tax payers which would make the venture unattractive. Total capital gain amongst the partners likely to be <£20k.
Many thanks for your advice.
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.
Hello and welcome to the site. Thank you for your question.

If you were to renovate the property and sell it for immediate profit, you are deemed to be property developer and not property investor.

As property developer, any profit arising is chargeable to income tax and also subject to class 4 NI as the income is treated as being from a trade.

The alternative is to renovate and put it on the market for letting purposes and then sell is after a few months. You are deemed a property investor in this case and any gain is chargeable to capital gains tax.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 3 years ago.
Thanks- would we actually have to let it or simply offer it to let.
How many months would we have to wait?
Would we need to set up a partnership or could it be dealt with by a commercial agreement setting out the basic rules?
Expert:  taxadvisor.uk replied 3 years ago.
Jeremy, thanks for your reply.

You have got to be seen to be making this property available for letting purposes to satisfy HMRC.

If it is let for a short let then fine otherwise wait upto six months and then dispose it to be on the safe side.

You don't need to form a partnership for this, setting up a commercial agreement would suffice.

I hope this is helpful.
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