"Stephen" wrote in message
...
snip
I was interested in buying a house, renovating it, and then selling
it, hopefully for a profit. I haven't done this before. I saw an
accountant who said that if I did this, the sale will be considered
income and I will have to pay income tax on the profits. The
accountant advised buying the house and then letting it. He said that
this way, when the house is sold, I would have to pay capital gains
tax rather than income tax and this is more tax "efficient" (i.e. less
to pay).

snip

When I last looked into this I found it quite complex, but all related to
capital gains tax.
Selling a house is a capital gain to a private individual.
[I don't know what rules apply if you are running a business to renovate and
sell on properties - in that case it might be considered income to the
business instead of a capital gain; seems reasonable.]
If you own a house and don't live in it then when you sell you are liable
for CGT on any period when you didn't live in it as your primary residence.
AIUI this is to tax people with second (third etc.) homes who effectively
invest in the property market and take habitable houses 'off the market'.

When I last looked you were not liable for CGT on a home where
(1) You lived in it as your primary residence
(2) You rented it out (I assume this was to encourage people to rent out
empty houses instead of just sitting on them as unused housing stock and
waiting for them to appreciate).
In either case the last three years of ownership did not count.
I suspect (again) that this was to enable people to buy a house before they
had sold the previous one and give them a reasonable time to sell without
CGT liability.
We did this twice (with bridging loans) when moving locations at the
company's expense.
So reasonable to allow a 'bridging' window for people to relocate without
penalising them with CGT.

So unless the rules have changed you should not be liable for CGT on a
rental property for the period which is occupied by a tenant and in any case
for the last three years.
You are liable for tax on any rental income after deductons.

On this basis it would look a no brainer to buy, do up, then sell withing
three years thus avoiding CGT.
Which is why I suspect that going down that route would be regarded as
running a business for renovating houses and any gain would be treated as
income to the business.

So your accountant masy be partly right - I hope he is wrong about the CGT
on a rental property because we are renting out a property which used to be
our primary residence which we couldn't reasonably sell and don't expect to
accrue CGT against it if we finally decide we can sell it.

We will be liable for some CGT on our now primary residence should we sell
it before the rules change again because we bought it before we moved into
it so it was unoccupied for a time.

You should anyway look for a second opinion.
Try the Motley Fool forum http://www.fool.co.uk/ which covers property
renovating and buy to let.

Usual disclaimers - IANAL etc.

HTH

Dave R
--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

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