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  • Tax

    CGT, SDLT, Income and Corporation tax?

    With thanks to the contributors to PT I am confident that I can have an informed conversation with Estate Agents, Letting Agents, Tradesmen and Council Officials. I am less confident that I will be as informed when speaking to an accountant. Before I make any decision I will take advice from a local accountant who specialises in property investment. This will be at a significant cost and it seems wise to have an understanding of the options available.

    I will have around £300k to invest. I need somewhere to live. I would like an income, after expenses, of between £10k and £15k. I have 10 years until I receive a small pension. I would like to transfer my assets to my daughter as I age. I have flexible employment, and any income from employment will incur tax at Basic Rate.

    I have the skills and experience to do basic renovations and a viable option will be to buy 2 properties in need of renovation and add value. I have experience of lodgers and tenants. For the sake of an example I can buy 1 property at £180k as a shared residential with lodgers and another at £80k, spending £20k on each I would likely have 2 properties worth £220k and £120k.

    Option 1 - Sole Trader - Residence + Landlord - Residential property - Income from lodgers £10k, running costs £5k - Rental property - Income £10k, costs £1k - Total Income £20k, costs £6k, tax deductible £1k. Taxable income £19k. Additional SDLT on 2nd property. CGT due if I gift 2nd property to daughter or sell.

    Option 2 - Sole Trader - Residence + Developer - Residential property - Income from lodgers £10k, running costs £5k - Development property - Income £40k, costs £20k - Total Income £50k, costs £25k, tax deductible £20k. Taxable income £30k. Repeat 1 property per year. Additional SDLT on 2nd property. No CGT due when selling development property. Is CGT due if I gift 2nd property to daughter?

    Option 3 - As above but as a limited company. If both properties are bought through a limited company can I be both director and tenant? Could I legitimately live rent and expense free in one property and still take an income from lodgers? Could I provide myself and my daughter with a pension and healthcare through the company? Will the running costs become expenses? Can I gift shares to my daughter without incurring CGT? Am I correct that I will pay additional SDLT on both properties? I understand I will pay corporation tax on any profits.

    I have a basic understanding of options 1 and 2 and a vague glimpse that there may be an option 3. I'm not expecting anyone to give me the best solution, that is what the accountant will hopefully do, but it would be helpful to understand and research the options available. Any opinions or links to examples will be appreciated.

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    Q - No CGT due when selling development property. Is CGT due if I gift 2nd property to daughter?

    A - I believe it is due but payment is deferred until it is sold (I'm not an accountant).

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    Thank you JOE BLOGGS. That wouldn't be the desired outcome and would be a good question for the accountant.

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