Property development

Property development

Didn't find your answer?

If a property was bought for say £100K and then developed over two tax years and then sold for £200K, is there any way that the £100K profit can be spread over the two tax years (and hence less of it will be taxable @ 40%) or is the profit all asssessable in the year of sale?
Ian Riley

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By AnonymousUser
27th Apr 2007 19:11

You do not say how you plan to tax the gain
ie income tax, CGT or even s776? If it is trading then you apply normal accounting principles and draw up accounts each year. This would include a proper valuation of work in progress at the end of the first year, which would probably have the effect of spreading the profit although not necessarily 50:50 between the 2 years. If you consider it is CGT then of course all taxable at the end.

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By IanRiley
27th Apr 2007 20:23

Thanks for your input Jane
Unfortunately it's a bit late for planning. The Revenue has uncovered 3 property developments going back to 1999 that were not declared. Although it would be better from the client's point of view if they were treated as CGT, there were significant improvements made to all three properties and IR are insisting that it be taxed as a trade.
Just wanted to see if there was a way of smoothing out the profits made although it may hardly be worth it if you are talking about on the one hand 40% tax on the toal profit and no class 4 NIC( because the upper limit would have been reached) and moving some of that profit to an earlier year where it would be taxed at 22% but also suffer 8% NIC and additional interest due.

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By billgilcom
28th Apr 2007 23:27

Trade or investment
couple of thinking points for you....
(a) if it's a trade then any loan interest allowable in arriving at the profits along with all costs of "development"
(b) if CG applies then any costs that would have been allowable revenue expenses if asset used in a trade would not be allowable against CG
(c) if profit taxable in earlier period then clearly interest for an extra year would be exigible
(d) I don't suppose that any of the properties were ever let out therefore removing the natural assumption or conclusion of trading.

Then of course there will be the incidence of penalties to be considered if as you say HMC have "uncovered" them and I have to ask why your client has gt imself/herself getting caught out in this way
regards
[email protected]
http://www.wamstaxltd.com

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