property development income

property development income

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A customer has set up a limited company and will be buying properties to renovate and sell at a profit. Am i correct in saying that the correct way to account for this business is like any other as it is actually a business and not just a one off renovation and all profits are subject to Corporation tax and not capital gains?

Also as the company itself was not eligible for a buy to let mortgage, the director secured one personally. The first renovation is now complete and has been sold, can the business claim the interest on the buy to let mortgage as an expense (even though it was not in the business name).

Can the business claim the council tax and utility bills as an expense that was paid whilst the property was being renovated and awaiting sale?

Any input is very much appreciated.

Many thanks

Replies (8)

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By DJKL
19th Apr 2016 09:29

Given mortgage obtained re the purchase of the property in name of the director it begs the question as to who has title to the property? I would be surprised if a lender would lend in name of an individual secured over a property that was not owned by the individual.

Now it may be that the director obtained bank funding personally and it not secured on the company's property but it would be helpful to know in order to really understand what has happened.

Subject to the property being the company's property all expenses incurred wholly and exclusively can be claimed but re the interest more clarity is required as to who lent funds to the company, a bank or the director?

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Replying to DJKL:
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By lisacolbourne
10th May 2016 15:12

Yes, the director obtained funding personally for the property however the property was not transferred in any way to the ltd company, therefore should this really be classed as a capital gain for the director personally??

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By cc3
19th Apr 2016 10:31

It may be that you have an individual buying and selling properties and a company that charges the individual for the renovation works.
Need to look at the relationship more closely.

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By MJ Green Accountancy
19th Apr 2016 11:34

You are correct in your assumption that the company is liable to Corporation Tax and not Capital Gains Tax.

 

Indeed, if an individual purchases a property with the sole intention of renovation and selling at a profit, it is liable to Income Tax, not Capital Gains Tax.

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By johngroganjga
19th Apr 2016 11:57

The position, to be pedantic, is that the profits are subject to corporation tax either way. That is because the tax that companies pay on their capital gains is corporation tax.

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By cc3
19th Apr 2016 12:20

The problem, John, is that we don't know where the company profits are going to come from at this stage.

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By ldcldc
20th Apr 2016 13:00

Property development

I've had a coupe of these recently.  As ADKL says the lenders are unlikely to advance to a company and the property was probably bought by an individual.  So, we've arranged to have a formal deed of trust indicating that the property belongs to the company and the director then lends the money to the company.  The director claims relief for interest on loan to company assuming there is other personal  income, of course.  As far as I can see this works and could be the way to get over the loss of relief on buy to lets.

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Replying to ldcldc:
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By lisacolbourne
10th May 2016 16:16

Many thanks for your reply, this is exactly along the lines of what I was thinking and researching, could the director charge the ltd company the interest he has incurred if he has no other personal income? many thanks

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