Tax status if I trade and invest?

[nice smooth plaster]

Hi folks, would appreciate any views on whether I can be liable to pay both CGT and IT, or whether it must be one or the other if my activities involve both longer term BTL, and short term trading / flipping. I mean I trust my accountant you understand, but no harm asking around before I raise this idea, so welcome any input..

I have a few years of accounts showing I let a few properties, but I now also want to start trading as well (refurb and sell type of thing). A friend suggested to me that HMRC might say this makes me a sole trader, and any disposals are then liable to IT, even properties I have been letting for a few years. Can this be correct, and if so would this be a reason to start a Ltd Company to trade under (i.e. to keep paying CGT instead of IT on disposal of currently held BTL properties)?

[Telometer]

Refurb would certainly be trading. And it *might* give you an IT liability on some properties that you had held as investments, but not necessarily. An investment property would certainly still be subject to CGT. But there are grey areas, of course.

You may be better off keeping your refurbs as investments, and selling properties you have held for a number of years. (If each year you sell the one or two properties with the lowest yield then that is a sensible review of your property portfolio.)

Otherwise yes a limited company would eliminate these problems - and probably cheaper from a tax perspective if you are reinvesting the proceeds.

[nice smooth plaster]

Many thanks for the comments Telometer. Of my four properties I am looking to sell two and keep my two high yielders, but want to stay on the CGT track for these and future investments. I keep seeing opportunities that I would like to try as trades, but don't want to leave my activities open to interpretation, so am leaning towards company formation for trading to keep clarity, oh and thanks for pointing out the tax advantage!

This has left me pondering some scenarios though, such as if I decide I would rather keep a property as an investment, or even buying and refurbing all properties under the company as a strategy, and seeking to sell some to myself with a mortgage at valuation. This means putting the mortgage deposit into the company as part of the sale price, and Corp tax paid on any profit. Some aspects of this idea appeal to me, such as I can keep options open, and the company can buy at auction with cash, and so relief on loan interest upon sale to me is kept tidy for investments. I somehow think this may not appeal to lenders, or might raise eyebrows at the revenue, but just a thought I was using over.
Interested if anyone does similar or can offer any views..

[JK0]

Sorry to hijack your thread NSP, but it has reminded me of something that occurred to me recently:

With capital gains tax no longer taking into account inflation, aren't we eventually going to get to a stage where no long term investors will wish to sell at all except under the direst emergency?

(Even at 5% inflation, money loses 40% of its value every ten years.)

[Telometer]

With capital gains tax no longer taking into account inflation, aren't we eventually going to get to a stage where no long term investors will wish to sell at all except under the direst emergency

Yes. My personal belief is that at a point in the future when the economy looks rosy again, say 2020, there will be a rebasing (like the March 1982 rebasing) to probably 2012-2015ish, and a reintroduction of indexation.

NSP. Remember that if your company refurbs and then you as an individual keep the property as an investment then:

1. The company will pay corporation tax on the profit - calculated at market value; and
2. You will have to pay SDLT as well.

If the property will be one you plan to keep, you would be better doing the purchase and refurb yourself. Best is, as I suggest, to keep them all privately, and to sell the bottom-performing 20% annually, sale subject to CGT. It should be possible to agree in advance with HMRC that that sale rate will not deem you to be a trader.

[nice smooth plaster]

I take interest in the views on CGT outlook. I guess it depends why a long term investor would want to sell, and with what urgency. For me I am starting small and am inclined to pay some CGT now, as I want to get more active in property with the capital instead of waiting out.

I appreciate your thoughts on this Telometer. My latest addition to the company idea was perhaps not the most efficient, but am still interested in experimenting with purely short-term trading ventures, so will think about this some more I guess.