Friday 24th July 2009 Blog

Are Your Clients Trading in Properties?

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

If your client is considered to be trading in properties it will have the following tax consequences:

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

Posted by: Bookcert Mentoring Team

Friday 24th July 2009

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