Flipping Property To Be Made More Difficult By Government
In A Bid To Boost Revenue
In the week when I have just purchased my first property to flip, the UK Government announced that they are planning to crack down on the profits made by property developers and property investors who flip property.
The Government want action due to the demand for housing greatly outstripping the supply to market and they want a slice of the revenue that they feel the country is missing out on. This could greatly affect my business plans, so I thought I would examine the issue in more detail:
Flipping property is considered by Government to be the process of changing your main residence before selling a property in order to avoid paying capital gains tax (CGT).
However, as many property people will tell you, “flipping” is buying a property at one price and reselling it again within a relatively short time frame (6 month rules apply) at a higher price, whether you have done any work to improve the property or not.Previously, the HMRC decreed that people who own two or more properties would have to pay capital gains tax if they choose to sell their second property, but some MP’s and foreign investors found a way around this by claiming that their second property was actually their main residence and changed their main residence addresses before selling their properties in order to benefit from better tax breaks, a scandal that was reported back in 2010.
UK PRS landlords are restricted from utilising the same methodology because the previous rules stated that property owners cannot claim a property as a main residency if it is being let out to paying tenants. However, there are instances where landlords have decided to sell off a rental property from their portfolios by waiting for tenancies to end and their tenants have moved out before claiming the property is their personal main residency, prior to selling it on, and it is this loophole that the Government want to close.
The same practice is often employed by overseas property investors who have purchased decent yielding rental properties in the UK. Previously even UK residents living abroad were exempt from paying capital gains tax on property sales due to the fact that they were not technically living in the country, meaning that their properties didn’t count as a second home.
So now the Government have decided that they wish to tackle the issue introducing new rules concerning what constitutes as a main residence.
They are currently looking at two options for the classification of a main residence, the first option regards the following as qualification of a main residence:
- Where the property owners post is sent,
- Where the property owner is registered to vote
- Where the property owners family lives
The second option for the classification of a main residence is :
- The place where the property owner lives most of the time.
However, the second option has proved unpopular across the spectrum due to the fact that some people live in alternative properties during the week rather than face a daily commute, yet don’t consider their weekday home to be their official main residence.
In Wales, the Welsh assembly recently announced that they are planning on going even further to tackle the issue of missing out on tax revenue from the sale of second homes by charging double the amount of capital gains tax when the property owners choose to sell.
Carl Sargeant, Welsh Housing and Regeneration Minister said: “Whilst second homes can have benefits for the local economy and tourism, the fact they are occupied for part of the year only may have an adverse effect on providers of local services and the availability of affordable housing for local people. In areas where there is a high concentration of second homes, local authorities may consider it necessary for people who have more than one home to pay a council tax premium and thus make an extra contribution to the provision of local services and affordable housing though the local taxation system.”
The Government are set on changing current legislation on second homes and capital gains tax in the hope that more properties will soon come to market, putting revenue towards the funding of much needed housing projects across the whole of the UK.
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