Convert freehold house into leased flats- CGT?

[CJP]

Can anyone help?

Are there any tax (stamp duty/CGT etc.) implications if I convert a freehold residential property into 4 leases (i.e 4 self contained flats)?

If I then go on to sell the freehold and the flats to a buyer of all 4 flats, would there be any tax implications for me?

Thanks in advance

[Tax Accountant]

Can anyone help?

Are there any tax (stamp duty/CGT etc.) implications if I convert a freehold residential property into 4 leases (i.e 4 self contained flats)?

If I then go on to sell the freehold and the flats to a buyer of all 4 flats, would there be any tax implications for me?

Thanks in advance to any genius:o

I do not believe there are any stamp duty implications of conversion. But best to check with your solicitor as this is not my field.

However, you may be regarded as a property developer and therefore liable to Income Tax /NIC on profits as a self-employed. Alternatively, you will be charged to Capital Gains Tax on the gains upon selliing.

If the property was used as your only or main residence until conversion, the developement may cause complications with CGT main residence relief.

Also bear in mind that ''you will be denied private residence relief (PPR Relief) if you acquire a property and/or spend money on it in order to realise a gain on its disposal'' (H M Revenue & Customs Help Sheet IR283).

I think you are best advised to seek professional advice before going too far down the line.

Ramnik

[CJP]

many thanks for your comments

cj

[Tax Accountant]

many thanks for your comments

cj

You are welcome.

Ramnik

[CJP]

A couple of follow up questions. The property isn't my main residence so I would have to pay CGT anyway.

Where can I get advice as Inland Revenue hasen't been helpful - they don't seem to be able to tell me what my liability could be?

If I were considred as developer by creating 4 leases (4 flats) from the freehold house before selling it, as Income tax is 40% and CGT is also 40%would there be any difference in the amount of tax I would have to pay?

Hope you can help.

CJ

[Tax Accountant]

A couple of follow up questions. The property isn't my main residence so I would have to pay CGT anyway.

Where can I get advice as Inland Revenue hasen't been helpful - they don't seem to be able to tell me what my liability could be?

If I were considred as developer by creating 4 leases (4 flats) from the freehold house before selling it, as Income tax is 40% and CGT is also 40%would there be any difference in the amount of tax I would have to pay?

Hope you can help.

CJ

With Income tax, you do not benefit from the annual CGT exemption which for the current year is £8,800.

With Income tax, you will also have to NIC.

As I understand it, you will effectively need to transfer the property at market value to your own trading business. Therefore, you will have a part CGT liability on the increase in value upto the date of the transfer and an Income Tax/NIC liability on increase in value thereafter on developement profits.

It may be possible to stay within the CGT regime if you convert into flats for investment purposes, ie letting.

I suggest that you seek professional advice regarding your queries.

Ramnik

[CJP]

Once again, many thanks.

I've been told that if you don't do any construction and the "flats" have been used as flats in the past, then there would be no tax implications as one wouldn't be considered a "developer".

[Tax Accountant]

Once again, many thanks.

I've been told that if you don't do any construction and the "flats" have been used as flats in the past, then there would be no tax implications as one wouldn't be considered a "developer".

But you originally referred to ''converting a freehold residential property into 4 leases (i.e 4 self contained flats).''

Now you seem to be implying that the property already consists of 4 flats.

Anyway, so long you have taken professional advice and are happy with it.

Ramnik

[CJP]

Sorry for confusion.

The property is a single freehold property but it has bee used as 4 individual self containted units (effectivley as 4 flats). What I'm doing is creating leases for these 4 flats from the freehold.

Hope this makes sense.

[Tax Accountant]

Sorry for confusion.

The property is a single freehold property but it has bee used as 4 individual self containted units (effectivley as 4 flats). What I'm doing is creating leases for these 4 flats from the freehold.

Hope this makes sense.

As I have said before, so long as you have taken professional advice and are happy with this.

Ramnik