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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Sorry this is a bit long winded but I need to include all the

Resolved Question:

Sorry this is a bit long winded but I need to include all the details.
My wife and I have an ambition to eventually retire abroad, probably by buying a property in Spain which we would initially rent out as a holiday rental and then eventually move into, and to do this we obviously need quite a substantial deposit to put down on any future property.
To this end last year in August we purchased a cheap run down flat with the idea of renovating it and then selling it on for a profit and hopefully creating enough for a deposit for our dream property abroad.
We bought the flat for £90,500 and spent the next year doing it up. We have this week, over a year later, put it back on the market at a valued price of £139,950. We have spent approx £105,000 with all costs and renovating it. We are not going to be venturing into the property renovation market again.
I am self-employed earning just under the higher taxation bracket at the moment, approx £35,000 pre tax. My wife is part time earning £7200 per year. We presently live in a rented house from the local housing association.
Our questions are:
• Would we pay Capital gains tax or would any profit from the flat sale simply be income tax from my taxes? My slightly non helpful accountant says simply income tax and NI payment.
• Would we qualify for roll-over relief into the Spanish property as it would initially be rented out, or we are also considering purchasing our council rental property, would roll-over relief qualify for that?
• As we are joint mortgage holders could we split any profit and thus reduce our tax payments?
• If we did pay CGT would we pay less as we’ve had the flat for over a year? Also would we qualify for the CGT allowance off?
• If the profit was split between my wife and I does that mean that she would have to self-assess at the end of the year?
• What would be the tax amount that we would be required to pay?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Leave this with me while I do some calculations.
Expert:  TonyTax replied 1 year ago.
Hi.
1 If you disclose it as a capital gain, HMRC may pick it up and say that you were acting as a property developer which to my mind you are and charge the profit to income tax and NIC. I know people who have taken a chance, disclosed a development gain as a capital gain and, given that HMRC have stretched resources, some have got away with it. I would struggle to sleep at night if I did that as I prefer certainty in my finances and taxes.
2 Whether its a capital gain or a trade sale, rollover relief would not be available as you are not selling a business asset.
3 The property should be held in joint names, ie both names on the title deeds.
4 There is no discount based on period of ownership. You would each get a CGT annual exemption which is currently £11,100 so only some £12,800 would be chargeable to CGT.
5 Yes.
6 Your wife would pay CGT at 18% (£1,152) and you would probably pay a little at 18% and more at 28% (maximum £1,792).
If the profit was treated as a trade profit, you would be able to claim the interest charges on your mortgage against it. That would not be the case in the capital gain scenario.
I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thanks Tony,So I guess the best way to go is to treat it as a trade profit and pay income tax and NI? If we put a bit onto my wifes £7200 to take her up to her tax allowance would she still have to self assess and then what would I have left to pay?
When you say I could claim the interest charges of the mortgage does that mean that over the past year I could claim all except the mortgage repayment charge?Sorry I'm being a bit thick..new at this.
Expert:  TonyTax replied 1 year ago.
You would need to register a partnership in the self-assessment system to disclose the income and expenses. You really need to do that by 5 October following the end of the tax year in which the partnership started.
You will both need to register for self-assessment if you aren't already registered. If your share of the profit was £17,500, for example, you would pay tax at 40% and Class 4 NIC at 9% on the excess over £8,060 (for 2015/16). There would also be a Class 2 NIC charge. Take a look below for more information:
https://www.gov.uk/self-employed-national-insurance-rates
You might consider allocating a larger share of the trading profit to your wife since she is a basic rate taxpayer.
Your accountant should be able to do all the above for you.
You could claim the interest charges from start to finish.
Customer: replied 1 year ago.
HiTony,Would we have to include my wifes part time earnings on the self assessment or would this be continued by her employer?
Expert:  TonyTax replied 1 year ago.
All taxable income would need to be disclosed.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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