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TaxRobin, Tax Consultant
Category: Tax
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Experience:  International tax
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We bought a property last year to renovate and rent out. The

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We bought a property last year to renovate and rent out. The property is in my husbands name as he is not currently working so therefore pays lower rate tax. My husband has also been working on the renovations. He is not a builder so this is not his trade ...... he has just finished a psychology degree so has the time and is quite practical.
The property (which is next door to where we live) is nearly finished so we had some valuations and the sale price is higher than we expected so we now need to make the decision whether sell or rent it out.
Tax is obviously important in this decision and we would like to understand whether this one-off transaction would be subject to CGT or IT and whether there is anything we can do to reduce the amount of tax paid.
You will be subject to CGT should you sell for more than your cost in the property.
Typical types of property you might pay Capital Gains Tax on include:
a property that you've bought as an investment
a second home
business premises
The amount received for your property is usually the sale price. The cost of your property is normally the amount you paid. As you've spent extra money to improve the property, you can deduct certain costs. Costs you can deduct include:
fees or commission for professional advice or services, for example, Capital Gains Tax valuations, solicitors' and estate agent or advertising fees
improvement costs to increase the value of the property - but not normal maintenance costs such as repairs or decorating
Stamp Duty Land Tax and VAT (unless you can reclaim the VAT)
The calculation would then be the Sell price minus the cost minus the improvements. The annual allowance is used to reduce the amount subject to CGT. The CGT would be applied to the end result.
1 You add together all of your gains for that tax year.
2 You add together all of the allowable losses you've made for that tax year.
3 You deduct the losses from the gains to work out the overall net gains or losses.
4 If the overall net gains are below your annual tax-free allowance (known as the 'Annual Exempt Amount'), there's no Capital Gains Tax to pay.
I received a notice that you replied but no post is showing.
Hi Caroline,
I'm just following up with you to see how everything is going. Did my answer help?
Let me know,
Customer: replied 3 years ago.

Thanks. Some of the detail you provided was helpful but I already knew the rules around CGT. What we really need to understand is whether in our circumstances we would be subject to CGT or Income tax. There is a significant different between the two and this is a key part of our decision around whether to sell or rent the property.

Kind Regards


The treatment of the costs of buying, renovating and selling the property and receipts from the sale of the property that are included in your income tax return will vary depending on whether you are carrying on a business of property renovation, have carried out a profit-making activity, or are a personal investor.
Actually ATO looks at your intent when you purchase.
If you are not in the business of property renovation, or do not enter into a profit-making activity, you are a personal investor and CGT is applied.
In regards ***** ***** property renovating activities, this was not a business,your husband's activity does not appear to meet the standards as a an ongoing business.
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