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Are You Trading in Properties?

Newsletter issue - July 09.

Low property prices are tempting some people to buy residential properties to develop and sell when the market improves. If you intend to do this, the Tax Inspector may argue that you are actively trading in properties, rather than just investing and letting.

If you are considered to be trading in properties it will have the following tax consequences:

  • All the gains you make on selling the properties will be subject to income tax at 20%, 40% or 50% rather than capital gains tax at 18%.
  • National insurance will also be due on top of these income tax rates.
  • You will not be able to set your annual capital gains exemption (£10,100 for 2009/10) against the gains made from selling properties.
  • If you run the property business through a limited company the difference in tax rates will be far less.
  • You may need to register for VAT.
  • Any rents received may be taxed as incidental trading income.
  • The value of your business should attract a 100% exemption from inheritance tax as business property.
  • You can get tax relief for indirect or abortive expenses connected with buying and selling properties.
  • Any losses you make by trading in your own name can be set against your other income.
  • You may qualify for entrepreneurs' relief if you sell your whole property business.

Please talk to us about your plans so we can advise you on the tax strategies which will fit your business.

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