Joe decided to buy a house refurb it and sell it. He declared the sale to HMRC within 60 days of completion and sent then 24% of the uplift because he is a higher rate taxpayer. Job done and money used as a deposit on his home. He’s happy. His wife is happy. Everyone is happy!
Apart from HMRC. Because the SDLT forms for purchase and sale all go to them, and Joe kindly told them he’d made a hearty profit in the short period he owned it, they took a look at the file. Joes figures show a purchase for £100,000, £50,000 spent on it and a sale for £250,000.
He worked his gain at 24% and paid over £24,000. Joe was extremely surprised when HMRC dropped him a letter asking for more information. He proudly told them his plan, how he executed it and provided all of the supporting documentation including his original workings on the refurbishment and planned uplift. Absolutely nothing to fear here. File, opened, info added and file closed.
Nope! Even more surprise for Joe when he got a demand for £21,000 tax and £4,000 of National Insurance. Why? Well Joe perfectly described how he intended to buy, refurbish and sell a house for profit. Just like a builder or developer would. What he didn’t describe is how he bought a house to rent, let it out for a few years and then sold it at a profit. Developers pay income tax and national insurance on trading profits whereas investors pay capital gains tax.
HMRC know this and that is why they asked Joe for the difference. Plus interest. Plus a nice fine. Joe’s not happy any more. His wife is not happy either. He’s spent the photos unfortunately and now has to find a way to pay a large tax bill while trying to keep his house.