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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15975
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Dear Justanswer I wish to establish if the following

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Dear Justanswer
I wish to establish if the following calculation / belief is correct?
I have a property an I am converting into apartments. This is a one off exercise on a self build which has been long overdue in completeing.
Here is a summary of the current position.
• Value of apartments when sold £340,000
• The land was purchased in 2000 for £50,000
• The shell was completed by 2004 at a cost of £110,000
• Interest on Self Build loan from Bradford & Bingley £30,000 the loan has now been repaid, the property is unencumbered.
• The property has been left empty for 10 years uncompleted
• Planning gained in 2014 for a conversion to 3 apartments
• Estimated costs for conversion are £80,000
• Cost of Sale and Legal £10,000
Profit would be (340-50-110-30-80-10 = 60) £60,000
If this were treated as income I pay 45% tax = tax liability = £27,000
I sell for £340,000
Less 10k legal = £330,000
Less 27K tax = £303,000 is left with me as cash.
In short I believe by spending £80k I can liquidate this property into £303,000 cash.
Am I correct or have I got it horribly wrong - or is there a better way.
Many thanks

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Customer: replied 1 year ago.
Just to be sure I live and work and am a British citizen and the property is in the UK - ie all UK tax

If the profit is taxed on you as a sole trader, you would also be liable to Class 4 NIC unless you are over state pension age at the start of the tax year in which the profit is made. The Class 4 NIC charge would be £3,484.60 (£8,060 @ 0% + £34,940 @ 9 % + £17,000 @ 2%).

Given how long the development and sale would have taken from start to finish, HMRC may say that the profit is subject to Capital Gains Tax which would means the interest charges would be disallowed increasing the profit to £90,000. However, you would get the annual CGT exemption of £11,100 leaving you with net taxable gain of £78,900 on which the maximum CGT would be £22,092 (28%) if you are a 40% or 45% taxpayer. If you are a basic rate taxpayer, some of the gain would be taxable at 18%.

I hope this helps but let me know if you have any further questions.

Customer: replied 1 year ago.
Thank you for this - so if as Sole trader i must pay the Income tax of £27,000 plus the NIC of £3,400 = £30,400 or they will tax it as CGT which totals £22,000
But just to be sure I wont have to Pay £30,400 +£22,000
Thanks Paul

You won't pay Income Tax/NIC and CGT.

Customer: replied 1 year ago.
excellent - I guess they'll tax m the £30,400
many thanks

You could disclose it as a capital gain but the planning permission implies a trading enterprise.

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