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  • Tax

    Investor or Developer?

    If I buy a property for £80k, spend £20k on refurbishment and sell for £120k I will pay income tax on the £20k profit as a developer.

    If I buy  a property for £100k and rent it for £10k pa I will pay income tax on my investment. If I sell it after 5 years for £120k I will pay Capital Gains Tax on the £20k increase as an investor.

    If I buy a property for £80k, spend £20k on refurbishment, rent for 2 years at £10k pa, then sell for £120k which tax is due on the £20k gain? I will have made £20k as an investor and £20k as a developer. I'm sure HMRC wouldn't just let me choose the cheaper option!

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    It has a lot to do with your intentions frrom the outset.

    If you did it once and said your intention was this but then you decided to to do that then  HMRC may accept the cheaper tax option for you on face value

    But they will have seen what you are attempting to do 1000 times before so will keep an eye on you maybe .

    If you repeat the exercise 2/3/4/5 times in say a 5 year period your intentions become clearer as a pattern develops.. You should be then taxed accordingly  

    Over a short time span and with just one property HMRC may accept your `best tax option  to suit me ` version  as they cant prove otherwise and yes  people are fickle and do legitimately chop and change their minds .  If you did it  50 times though the best tax option for me version weakens and HMRC may call you in for a more in depth interview as to what your intentions really were / are..

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    Jonathan Clarke. http://www.buytoletmk.com