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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am in a partnership with 1 other person. We have purchased

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Hi. I am in a partnership with 1 other person. We have purchased a small rural business park with a mortgage through Natwest. We are in the process of buying and developing some other barns at another site with the plan to sell them as soon as they are finished, we will be taking out a mortgage and loan with Nat west to do this. My question is this - when we sell the Barns can the proceeds after paying off the mortgage/loans be paid off of the mortgage for the business park, as all the properties are owened by the partnership or do we have to declare any profit on the sale and pay capital gains tax?
If you actually develop the barns yourselves or employ builders to do so and then sell them at a profit, that profit will be deemed to be trading income as opposed to capital gains and will, therefore, be subject to income tax and class 4 national insurance contributions. Your lender may want the loan repaid once you have sold the barns but that doesn't wipe away the profit. It just clears the loans.
I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.
Thank you. So if we make a loss on the Barns, when we have paid off the mortgage on them and the loans to carry out the work we can put this as a trading loss?
The mortgage is not part of the cost of the barns. The cost of the barns is what you pay to have them built including interest on the loans. If you sell them at a loss, that will reduce your trading profit on other activities.
Customer: replied 2 years ago.
Sorry I am a bit confused. We are buying the land and derelict Barns, can we not claim the cost of the purchase?
You can claim the cost of the purchase but the mortgage is part of that purchase cost so you don't double count. The cost of the land around the barns would be a capital expense (but see below) that you would not claim as a revenue expense. The land would be an asset on your balance sheet, not trading stock. If you sold it and made a profit, you would pay CGT. The development of the barns is a trading activity and if they are sold at a profit, you will pay income tax and NIC. The land would only be trading stock if you were developing all of it with a view to selling it at a profit in which case the profit would be subject to income tax and nic.
Customer: replied 2 years ago.
Thanks so am I right in saying when we have finished them we can claimCost of Purchase (inc fees and interest)
Cost of renovation works
Sales costs (Estate agents, legal fees etc)We would take this off the Sale Price and any profit would be subject to capital Gains Tax?
If you are developing and selling all the land and barns quickly, it is trading profit and subject to income tax and NIC. You can claim all the expenses you mentioned. If you keep any land and maybe let and sell it in a few years, that profit would be subject to CGT as you clearly bought it as an investment.
Customer: replied 2 years ago.
There will be 3 barns developed. If we sell 2 but keep the third to let out what would happen then? Would we be liable to CGT on the sale proceeds of the first 2 barns or income tax and NIC?
Income Tax and NIC on the first two. If you let the 3rd and sell it later, that will be CGT.
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Customer: replied 2 years ago.
Great Thanks
Thanks for accepting my answer.
Customer: replied 2 years ago.
HiSorry one more question. If we do not sell the first two barns straight away but let them out instead would they all them be subject to CGT when they are sold?
Yes, they would. You would claim the mortgage interest against the rental income not your trading income.
Customer: replied 2 years ago.
Thank you and so when we sell them we would claim back the cost of purchase, renovation costs and sales costs from the Sale Price.If we sold 2 but kept one could we claim the whole cost of purchase, renovation and sales costs from the Sales price of the 2 sold and keep the third Barn to let out as an asset or would we have to divide the purchase cost and renovation costs into 3 and only claim 2/3 against the 2 barns we sell?
Firs paragraph, correct. Second paragraph, not correct. You have to apportion all the costs between the barns individually.
Customer: replied 2 years ago.
Ok Thank you