Second income on property development
Discussion
I dont suppose someone could tell me how to declare a second income from property development?
I will be employing an accountant to sort out the tax returns however id like to be clear in my mind first.
As a background.
Myself, wife, father & step mother purchased a plot of land; we have employed a contractor to undertake all works and have paid on a monthly basis.
The property is now on the market and with a fair wind we will see something in the region of £50k profit from the project with it being split between the 4 of us.
Would I be paying via capital gains or income tax as a second income?
Capital gains will give me a tax free allowance of £11k so only need to pay tax of 28% on the £1500. £420 would be great
However if the profit was simply added onto my existing employment I would see my income tax and NI payments increase by just over £5k. Which would be a bummer
I will be employing an accountant to sort out the tax returns however id like to be clear in my mind first.
As a background.
Myself, wife, father & step mother purchased a plot of land; we have employed a contractor to undertake all works and have paid on a monthly basis.
The property is now on the market and with a fair wind we will see something in the region of £50k profit from the project with it being split between the 4 of us.
Would I be paying via capital gains or income tax as a second income?
Capital gains will give me a tax free allowance of £11k so only need to pay tax of 28% on the £1500. £420 would be great
However if the profit was simply added onto my existing employment I would see my income tax and NI payments increase by just over £5k. Which would be a bummer
Can I recommend Eric Mc on here if you need an accountant.
http://www.pistonheads.com/gassing/profile.asp?mem...
http://www.pistonheads.com/gassing/profile.asp?mem...
barryrs said:
I dont suppose someone could tell me how to declare a second income from property development?
I will be employing an accountant to sort out the tax returns however id like to be clear in my mind first.
As a background.
Myself, wife, father & step mother purchased a plot of land; we have employed a contractor to undertake all works and have paid on a monthly basis.
The property is now on the market and with a fair wind we will see something in the region of £50k profit from the project with it being split between the 4 of us.
Would I be paying via capital gains or income tax as a second income?
Capital gains will give me a tax free allowance of £11k so only need to pay tax of 28% on the £1500. £420 would be great
However if the profit was simply added onto my existing employment I would see my income tax and NI payments increase by just over £5k. Which would be a bummer
If the only income received from this property is the profit you make when it is sold, then you will most likely be taxed under the Capital Gains Tax rules - unless you have started business as a property developer - in which case you are running a property development BUSINESS and the profits achieved would be taxed under Income Tax rules. I will be employing an accountant to sort out the tax returns however id like to be clear in my mind first.
As a background.
Myself, wife, father & step mother purchased a plot of land; we have employed a contractor to undertake all works and have paid on a monthly basis.
The property is now on the market and with a fair wind we will see something in the region of £50k profit from the project with it being split between the 4 of us.
Would I be paying via capital gains or income tax as a second income?
Capital gains will give me a tax free allowance of £11k so only need to pay tax of 28% on the £1500. £420 would be great
However if the profit was simply added onto my existing employment I would see my income tax and NI payments increase by just over £5k. Which would be a bummer
Do you intend to do this exercise again?
Did you buy this property PURELY to do it up and sell it or was there ever any intention to (say) rent it out?
Sound like it was a business project and therefore the profits would be taxed under Income Tax rules - not Capital Gains Tax.
At the end of the day, it is up to you and the other members of the group to decide how the profits should be returned to HMRC. You need urgent accounting advice.
At the end of the day, it is up to you and the other members of the group to decide how the profits should be returned to HMRC. You need urgent accounting advice.
The OP states it was DEVELOPMENT and admits it was with a view to resell at a profit with no long term intention to retain for rental purposes.
As much as I don't like to admit defeat, this looks like a trading transaction with income tax and Class 4 NIC required.
It also looks like it was a partnership so a set of accounts and a partnership TR will be required, from which your share would be stated and would be included in your own TR.
BTW, how long has the development been carrying on? You may have missed a deadline to register the partnership with HMRC.
David
As much as I don't like to admit defeat, this looks like a trading transaction with income tax and Class 4 NIC required.
It also looks like it was a partnership so a set of accounts and a partnership TR will be required, from which your share would be stated and would be included in your own TR.
BTW, how long has the development been carrying on? You may have missed a deadline to register the partnership with HMRC.
David
From the OP's statements, it is so obvious that so many citizens just don't know what they don't know.
An awful lot of people seem to automatically think that because their project involves land and buildings (rather than say, tins of beans) that the profits earned will be taxed under something like Capital Gains Tax rather than Income Tax.
An awful lot of people seem to automatically think that because their project involves land and buildings (rather than say, tins of beans) that the profits earned will be taxed under something like Capital Gains Tax rather than Income Tax.
Thanks again guys.
I suspected I would need to set up a self employed partnership between us all which is fine for the parents as they are already registered self employed and have a UTR whereas my wife and I are employees and have only been such.
When you get told that its taxed under capital gains by so many people you tend to doubt your own research and hence the question here.
Looks like i will need to get this sorted out ASAP; another thing for me to sort out
I suspected I would need to set up a self employed partnership between us all which is fine for the parents as they are already registered self employed and have a UTR whereas my wife and I are employees and have only been such.
When you get told that its taxed under capital gains by so many people you tend to doubt your own research and hence the question here.
Looks like i will need to get this sorted out ASAP; another thing for me to sort out
As Sumo says, when a trading partnership is set up, HMRC requires that the PARTNERSHIP itself has to complete a separate partnership Self Assessment tax return of its own.
So, the first thing that needs to happen is that HMRC needs to be notified that the partnership has been set up. They will then allocate the partnership a tax reference (UTR - Unique Tax Reference).
I presume this project started some time after 5 April 2014. If that is the case then HMRC will require that a 20014/15 partnership tax return be completed. This return will need to be submitted sometime before 31 January 2016.
The partnership tax return can only be completed once a set of partnership accounts have been prepared. This is where an accountant will probably be required. The figures from the partnership accounts plus any specific partnership related tax computations are what gets entered on the partnership return. The partnership return also shows how the profits (or losses) of the partnership are to be split between the various partners.
The partnership itself does not pay any Income Tax or NI of its own.
From a personal tax point of view, all the partners need to complete their own personal Self Assessment tax returns. It seems that two of the partners already do this so they will already have their own UTRs. All they need to do is, when completing their self assessment tax return is show their share of the partnership profits or losses in the appropriate section of their returns.
For the partners who have not ever completed self assessment tax returns, they need to individually contact HMRC in order to let them know that they will need to complete personal SA returns and to obtain their own individual UTRs.
So, the first thing that needs to happen is that HMRC needs to be notified that the partnership has been set up. They will then allocate the partnership a tax reference (UTR - Unique Tax Reference).
I presume this project started some time after 5 April 2014. If that is the case then HMRC will require that a 20014/15 partnership tax return be completed. This return will need to be submitted sometime before 31 January 2016.
The partnership tax return can only be completed once a set of partnership accounts have been prepared. This is where an accountant will probably be required. The figures from the partnership accounts plus any specific partnership related tax computations are what gets entered on the partnership return. The partnership return also shows how the profits (or losses) of the partnership are to be split between the various partners.
The partnership itself does not pay any Income Tax or NI of its own.
From a personal tax point of view, all the partners need to complete their own personal Self Assessment tax returns. It seems that two of the partners already do this so they will already have their own UTRs. All they need to do is, when completing their self assessment tax return is show their share of the partnership profits or losses in the appropriate section of their returns.
For the partners who have not ever completed self assessment tax returns, they need to individually contact HMRC in order to let them know that they will need to complete personal SA returns and to obtain their own individual UTRs.
Thanks a million Eric.
That explanation makes the whole process feel less daunting.
I did give this plenty of consideration before starting/buying the land but at the time it felt like there was no rush but of course time fly's.
I had always expected to pay income tax (hoped for capital gains) on the profit and the additional income for whats effectively part time work will be nice but i will ask myself if its worth the agro if my wife and I will be paying 40% in tax.
That explanation makes the whole process feel less daunting.
I did give this plenty of consideration before starting/buying the land but at the time it felt like there was no rush but of course time fly's.
I had always expected to pay income tax (hoped for capital gains) on the profit and the additional income for whats effectively part time work will be nice but i will ask myself if its worth the agro if my wife and I will be paying 40% in tax.
barryrs said:
Land was purchased in March, work started in June and I hope to sell before Christmas.
Looks like the wife and I might be looking at circa £10k in tax & NI then.
Ah well; on the plus its circa £15k profit for 8 or 9 months part time.
Technically you could have started "trading" in tax year 2013/14. March 2014 is before the end of the 2013/14 tax year - which ended on 5 April 2014. This means that you would need to get the skids on as you would need to be completing four personal 2013/14 self assessment tax returns (one for each partner) and the 2013/14 partnership tax return (five returns in all).Looks like the wife and I might be looking at circa £10k in tax & NI then.
Ah well; on the plus its circa £15k profit for 8 or 9 months part time.
As no property was actually sold before 5 April 2014, there obviously was no profit that year so there would be no tax to pay. Indeed, there might even be some losses that you could claim for.
In reality, I would suggest that you REALLY started trading just after 5 April 2014. This would obviate the need to complete 2013/14 tax returns.
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