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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hello If I buy a property for 200 and split it into 2 properties

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If I buy a property for 200 and split it into 2 properties (or build on the land) and then sell one of the properties but retain the other, what, if any, CGT do I pay or is it postponed until I sell the whole project.
Thank you

If you buy a property with a view to developing it and selling all or part of it at a profit, HMRC is likely to treat you as trading and charge any profit you make to income tax and national insurance contributions as opposed to capital gains tax. You wouldn't delay the tax charge necessarily by only selling one property. Your purchase and developments costs would be split between the two properties.

If you split the property into two and let them or knocked it down and built a new property and then let it for a year or so before selling, then you may be treated as a property investor and only pay CGT on any gains you make. If you lived in one for a period of time, you may avoid tax altogether on the one you move into but HMRC will look very closely at what they refer to as "the quality of occupation". They are winning an increasing number of cases where people move into a property purely with a view to diluting or wiping out any tax charge as opposed to making it their medium term or long term home.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.

Thank you

As it happens the properties I am talking about I have owned for many years as rentals. Does this make a difference?

My problem is the properties are highly geared due to re-mortgaging over the years so have high mortgages on them compared to what I bought them for.

I am in a catch 22 situation as I was made bankrupt a few years ago but retained the properties through friends and family donations which I need to pay back by selling the properties. Unfortunately I didn't realise I was still liable for CGT.

Therefore if I bought the property for 100, mortgage is 200 and I sell for 225 there is no profit, and hence why I was thinking if I split them and then sell one I could take away some money to pay friends and family.

HMRC may still look at any development as trading. I had a client who was both a property investor and a developer. If he improved a let property over time before selling it, he paid CGT. A short term development project followed by a quick sale may still leave you exposed even on what was a let property because would be creating something new.

HMRC don't always pick these transactions up and many people pay CGT as opposed to income tax and national insurance contributions.

Unfortunately, the mortgages won't be taken into account in calculating any gain or profit.
Customer: replied 3 years ago.

thank you

So it sounds like the best way is to split and then keep for a year or two and rent out, and then sell?

once you reply I have another question based on my situation but I will open up another question line

That would probably be the safest way to do it but there are no guarantees.

If you would like me to answer another question, then be sure to ask for me to answer it.
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