Hi again.SOLE TRADER OR PARTNERSHIP
If you buy and renovate property with a view to a quick sale and profit, then you will be treated as trading by HMRC. If you trade on a self-employed basis, you will pay Income Tax and Class 4 National Insurance Contributions on your profits. There is also a flat rate Class 2 National Insurance Contribution of £2.80 per week. So, the amount of tax and NIC you will pay will be dependent on whether you continue with your job or not. Take a look here
for the current tax rates and allowances.
You could reduce your tax exposure by paying pension contributions out of your profits.CAPITAL GAINS TAX
If you didn't sell the properties immediately but let them for a year or two, you could then sell and pay Capital Gains Tax instead of Income Tax and NICs. A pure property developer looks for a quick profit and to use that profit to move onto the next development or renovation. A property investor tends to hold onto property for a longer period but you can be both property developer and investor at the same time. I've had several clients in that situation. Take a look here
for information on Capital Gains Tax which is charged at 18% and 28% or a combination of the two rates and how it interacts with Income Tax.
Take a look here
for some information on running a limited company. A limited company pays Corporation Tax at 20% on its trading profits and capital gains. It can also claim indexation allowance, a type of inflation allowance, against its gains which individuals cannot.
A director or shareholder only pays tax on what they draw from the company in terms of salary and/or dividends whereas a self-employed individual pays tax and NIC on whatever their profit is for the tax year. Paying salaries can be expensive what with employee and employer National Insurance Contribution rates which you can see here
. The sum of salaries and employer NIC are deductible expenses so will save the company 20% in corporation tax but the director may pay a higher rate of tax personally.
Whilst dividends are not a deductible expense and can only be paid from profits to shareholders, they are not subject to NIC and are treated as basic rate tax paid. There will only be further tax to pay if the shareholder is a high rate taxpayer. Take a look here
for information on tax and dividends.
Use the calculators here
to experiment with different profit figures and to compare the different tax and NIC liabilities which arise for self-employed profits and limited company profits/director/shareholder income. The notes here
are also informative.
I hope this helps but let me know if you have any further questions.