Reducing Capital Gains Liability

[TommyP]

My partner and I are proposing on purchasing an end terrace house with plans of converting the property into two flats and then selling either one or both.

Question is how to reduce the CGT when we come to sell.

At the moment the numbers look like this.

Buying for £200k, renovation/extension costs £50k, Fees £3k (inc Stamp Duty), Mortgage £5k (Total £258k)

Sell Flat 1 for £160k, Flat 2 for £150k, Fees £15k (5%), Sell Separate Garage £10k (Total = £335.5k)

Total Profit (before Tax) = £77.5k

If I work it out correctly (we’re both basic rate tax payers) Allowance £8.5k each = £17k (Assuming we make no more financial gains)
CGT = £77.5k - £17k * 20% = £12.1k

We aren’t married and own one other property which is our main residence, mortgages are in joint names but can we split our residences e.g. Say that Flat 1 was my 2nd home and flat 2 was my Partners?

Any help / advice gratefully received.

Thanks

Tom

[Tax Accountant]

(1) Any property bought with a view to make a gain does not qualify for private residence relief.

(2) If you buy a property and renovate this with the purpose of reselling at a gain, you will most likely be classed as engaged in business as a property developer. This means that you will be taxed under income tax rules and not CGT rules.

(3) If you buy a property and hold it as an investment, eg let the property, you will be taxed under CGT rules upon selling it in due course.

(4) If you buy a property and genuinely use it as your (second) residence, you may be able to nominate it as your main residence in place of your actual main residence. Same applies to your partner. She is entitled to have her separate main residence. It is only the married couples who are entitled to have only one main residence between them.

Ramnik