How To Pay Tax If You Are Flipping A Property

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Thinking about flipping houses? It’s a great way to tackle property investment and make money fairly quickly, but there may be some key implications you hadn’t previously considered, like the tax burden that typically comes with flipping a house. What should you know about flipping houses in the UK before you get started when it comes to taxes? This quick guide to property flipping and taxes can help you learn more now.

Understanding the Concept of Property Flipping in the UK – What is Flipping?

It may first help to define the idea of house flipping in the UK. Flipping houses means you buy a property for a fairly low amount of money, often one that requires some level of work and repair, then make renovations to help increase the value of the property. When you’re done, you work to sell it as quickly as possible to make your flipping profits.

The Tax Implications of Flipping Property in the UK

When it comes to flipping property in the UK, what tax concerns should you have? Plenty, especially if you’ve done other kinds of property investment in the past. If you’ve ever invested in property to let, you may have experienced the way rental property is taxed. As you walk into flipping properties, it’s important that you understand this kind of property deal doesn’t get taxed in the same way. Those who buy a property to refurbish it, and then sell it face a special tax on flipping houses in the UK. They do face income tax and National Insurance on the sale of the property. If you are already a high-rate taxpayer, you may have to pay up to 40% tax on the sale of that property. The good news, though, is that according to the HMRC, flipping houses is not an investment, so you are not liable for Capital Gains Tax or CGT. If you already have a limited company, you may be taxed on that side instead. In most cases, if you plan on flipping the property through a limited company, you will be liable for corporation tax instead of traditional income tax on that.

Are There Other Things to Consider?

There are many other factors to consider if you’ve never flipped property in the UK in the past. It starts with research. Make sure you know the best areas to invest in. The last thing you want to do is pour time, money, and effort into a given property, and then find you are unable to sell it because it’s not in the right area. Do your research ahead of time to understand the potential for sales in the area where you plan to invest.

You’ll also want to think about the kinds of properties that sell best within that area. For example, flats may sell well in the centre of a city, but they may not do as well in a rural area. Take things like that into account as you think about the property that might best meet your needs.

Next, think about the cost of improvements. You need to understand how much labour and materials will eat into your budget because the entire goal in this venture is to make money. Don’t overestimate your ability to handle many of the renovations on your own. If you’ve never handled a certain kind of renovation like flooring or plumbing, you may want to leave it to the professionals, as you could easily damage your new investment, and that could end up costing you more in the long run. Identify the jobs you can handle and the ones you may need to work with a professional on, then get your team in place so that you’re ready to get started as soon as a new property comes in. Be sure you know exactly what things are going to cost so you know how much you can spend on the property itself.

You’ll also want to consider your finances before you get started. The single best way to pay for a property you intend to flip is with your savings, but there are other methods of finance possible for this kind of property investment. You can look into options like bridging loans and other kinds of mortgage products you need until you build up enough capital to start flipping houses regularly.

The Bottom Line

Flipping houses can be a fun way to invest in property, but there are all kinds of implications to consider including taxes. Be sure you do your homework before you get started.

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