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bigduckontax
bigduckontax, Accountant
Category: Tax
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My wife and I bought a house last year and refurbished the

Customer Question

my wife and I bought a house last year and refurbished the property. I am retired and was hoping to rent the property to add to my income. In the end we were told that the rental market was not good in the area and were advised to sell. in the end we made a profit of over £25k. Do you see this as a capital gain?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to be able to help you with your question. On the assumption that this house is not your sole or main domestic residence, you would be liable to Capital Gains Tax (CGT) on any gain made. However, the gain would be calculated from the difference between the disposal price and the acquisition ditto. The acquisition price is calculated as follows. Take the price paid, add purchase costs, add improvements eg installation of double glazing, central heating extensions etc. The disposal price is the amount received less selling costs eg estate agents', solicitors' fees, advertising etc. Having derived the gain divide it by two, half each for you and your spouse. You each have an Annual Exempt Amount (AEA) of 11.1K to offset this gain. In a worst case scenario, assuming that the gain was indeed 25K and not reduced as I have described above, then 25K / 2 = 12.5K - 11.1K = 1.14K liable to CGT. CGT is levied at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale giving a possible liability of a tad under GBP 400 each. I do hope that I have shed some light on your position.
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site.

Thank you for requesting I help you with your question.

I have a different answer.

It was your intention to refurbish the property and let it for income but circumstances changed and you decided to sell the property and made a gain of £25k.

As the property was never put on the market for rental purposes HMRC would view as a property developer and not property investor and assess the profit as income and not capital gain.

If that were to be the case, then you and your wife would have £12.k each added to your respective income and taxed at income tax rate.

It does not matter whether you refurbish and sell one property or several.
You would be able to declare this gain as capital gain only you you can support the claim that the property was made available for let and in the absence of any tenants taking the property it was decided to sell it.

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.

Expert:  bigduckontax replied 2 years ago.
Whilst my colleage's intervention is a possibility, this interpretation by HMRC, although a popular approach by that Department, could almost certainly be fought and fail with a competent trusted, accountant to handle your case.
Expert:  bigduckontax replied 2 years ago.

If you could show that it was your intention to buy to let, say from letters to your solicitor before the conveyance of the property then this property trading approach by HMRC might well be on shaky ground. Furthermore, were you able to show that after purchase that the letting market was very weak, hence your decision to sell then this would reinforce your case for the gain to be treated as a capital one.

I know of a case where a buy and a sale took place within a month and the tax authorities did not bat an eyelid in the matter.

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