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TaxVince
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Category: UK Tax
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Hi, I have CGT / Income Tax questions regarding buying a property

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Hi, I have CGT / Income Tax questions regarding buying a property & renovating it & selling. In this case a couple have bought a property jointly Nov 12 & sold in May 13 for a profit after renovating - they now are purchasing another property to do the same again. At what point does HMRC consider that the gain on sales is not under CGT but a trade under Sched D? If they continue to do this exercise -buying a property one at a time, renovating it & selling, is it better doing this as a Limited Company? Thanks, R
Submitted: 1 year ago.
Category: UK Tax
Expert:  TaxVince replied 1 year ago.

MamaTax :

Hi Its MamaTax Here!

Thanks for the question.

MamaTax :



To distinguish between trading and capital gains, the HMRC commonly refer the Badges of Trade – however this is not a black/white distinction in all the cases. The following are considered (not limited to these):


 


1. Motive- whether holding it for long term investment or short term profit making. This is the most fundamental and significant test. Also google this case to see this principle in application. Salt v Chamberlain 1979


2. Number of transactions - A single isolated transaction generally cannot be a trade. The opposite is true. that is not the case. See case Leach v Pogson 1962


3. Nature of asset see case Rutledge v CIR 1921,


4. Similarity of transactions eg taxpayer has an existing trade, a similarity of this trade to other quite separate transactions may be a strong pointer towards them being trading activities.


5. Length of ownership


In the case of HMRC thinking that this is trade, the onus is on your client to prove that the opposite is true –however this will be a big task as most of the above pointers seem to support that these transactions are trading and not capital gains.



MamaTax :

Hope this helps.

TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 961
Experience: Chartered Accountant >20 years + Qualified IFA
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