Property Developers - How Bad is Capital Gains Tax?
Discussion
If you are "in business" as a property developer - then CGT doesn't apply. Profits obtained on the disposal of any properties would be looked on as normal "Trading Profits" and taxed under the normal Income Tax rules - and would also be subject to Class 4 National Insurance.
If the property disposal is a "one off", then the Capital Gains Tax rules would apply -
in this case, the tax applied to the "taxable" gain would be at your highest rate of tax - usually 40%.
However, before the gain is calciulated, you can take off Taper Relief (if the asset has been owned for over three years) and the owners of the property can also offset their share of the gain the Annual Capital Gains allowance - currently £8,800.
There would be no Class 4 NI liability arising either.
If the property disposal is a "one off", then the Capital Gains Tax rules would apply -
in this case, the tax applied to the "taxable" gain would be at your highest rate of tax - usually 40%.
However, before the gain is calciulated, you can take off Taper Relief (if the asset has been owned for over three years) and the owners of the property can also offset their share of the gain the Annual Capital Gains allowance - currently £8,800.
There would be no Class 4 NI liability arising either.
No.
If you are running a bona-fide business which develops property as one of its trading activities, then the tax is calculated as it would be normally on the trading profits - not under Capital Gains Tax rules.
Whether an activity is a one off capital investment or a trading activity is not always clear. Indeed, this was one of the reasons why CGT was invented in the first place back in 1965.
In those days, you only paid tax on trading profits. If you bought and sold an item (such as land or property) as a one off transaction, you could argue that it was not a trading transaction and therefore escape tax altogether.
CGT was invented to catch these "non-trading" purchases and disposals.
If you are running a bona-fide business which develops property as one of its trading activities, then the tax is calculated as it would be normally on the trading profits - not under Capital Gains Tax rules.
Whether an activity is a one off capital investment or a trading activity is not always clear. Indeed, this was one of the reasons why CGT was invented in the first place back in 1965.
In those days, you only paid tax on trading profits. If you bought and sold an item (such as land or property) as a one off transaction, you could argue that it was not a trading transaction and therefore escape tax altogether.
CGT was invented to catch these "non-trading" purchases and disposals.
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