# Buying off plan and "flipping"



## Privinv (15 Jun 2006)

Hi

I have a deposit on a house currently being built, purchase price being €250,000. I am interested in "flipping" - selling on. Value on completion in 2 months time will be more than the €250k. I have heard of this being done without incurring stamp duty and CGT, is this possible?


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## CCOVICH (15 Jun 2006)

Yes, it is unless you make a business/trade out of it. It has been discussed here before.


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## therave (15 Jun 2006)

it can be done but you will need a very good solicitor,compliant builder and auctioneer/the auctioneer and solicitor will be laughing as thye will be getting paid twice for selling the contract on... you are at the mercy of the auctioneer really as you will be reliant on them to sell your property or point out to prospective buyers that you have one to sell..usually they will do you a good deal on the fee and add you to their "list" for future ...the cgt part i am not sure of unless your are a first time buyer.. at the end if you  do buy it and then sell it after a month you will need to add the solrs and auctioneers fees to the 250k plus any stamp you incur so to then break even you would realisticallly need to sell for  approx  estimated 270k.. the good thing abou this flipping is if you get on well with the auctioneer and the builder is doing the estate/properties in stages then the price will rise but timing is crucial.. i hope this helps


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## Privinv (18 Jun 2006)

Thanks for the replies


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## woods (18 Jun 2006)

Can not see how you avoid CGT


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## Howitzer (18 Jun 2006)

Well if you do avoid CGT as it may be construed as not a property transaction, then surely the profit accrued would then simply be seen as part of the flippers income, and as such be liable to tax at the flippers marginal rate. 

I think I'd declare it as CGT at 20% rather than income at 42%.


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## liteweight (20 Jun 2006)

Find this a bit confusing. When do you officially own a property..is it when you  sign contracts or when you hand over the money? If it's upon final payment and you never reach that stage, then how can it be a capital gain?


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## Howitzer (21 Jun 2006)

liteweight said:
			
		

> Find this a bit confusing. When do you officially own a property..is it when you sign contracts or when you hand over the money? If it's upon final payment and you never reach that stage, then how can it be a capital gain?


 
Exactly, it's simply income, and should be taxed at your marginal rate.


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## dam099 (21 Jun 2006)

Howitzer said:
			
		

> Exactly, it's simply income, and should be taxed at your marginal rate.


 
I agree it will get caught one way or the other as either income or a capital gain but I think there is potential to regard it as a capital gain.

By paying a booking deposit you are buying a contract to purchase at a fixed price and then when you flip you are selling your interest in this contract on to a third party so you could argue it is similar to a financial instrument such as a share (or probably more closely a derivative of some sort similar to an option).


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## Glenbhoy (21 Jun 2006)

> I agree it will get caught one way or the other as either income or a capital gain but I think there is potential to regard it as a capital gain.
> 
> By paying a booking deposit you are buying a contract to purchase at a fixed price and then when you flip you are selling your interest in this contract on to a third party so you could argue it is similar to a financial instrument such as a share (or probably more closely a derivative of some sort similar to an option).


That would be my take on it too - it would be unlikely to be classifed as income unless it the 'flipper' was doing this on a large scale. However as  discussed elsewhere, I don't see why a developer would allow this sub-sale of a contract to take place.


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## liteweight (21 Jun 2006)

Glenbhoy said:
			
		

> That would be my take on it too - it would be unlikely to be classifed as income unless it the 'flipper' was doing this on a large scale. However as  discussed elsewhere, I don't see why a developer would allow this sub-sale of a contract to take place.


I presume when a developer is selling off plans he needs cash flow and to possibly prove to bank that development is viable. Cash in hand might be better than a little bit extra down the road. I suppose public perception of the development at its first stage might be important too i.e. better get in quick for 2nd phase as 1st phase 'flew out the door'

At any rate, they do allow it as I've friends who have done it!


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## Howitzer (21 Jun 2006)

liteweight said:
			
		

> At any rate, they do allow it as I've friends who have done it!


 
What did they do regarding the 20% CGT v 42% marginal income tax issue?


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## Glenbhoy (21 Jun 2006)

liteweight said:
			
		

> I presume when a developer is selling off plans he needs cash flow and to possibly prove to bank that development is viable. Cash in hand might be better than a little bit extra down the road. I suppose public perception of the development at its first stage might be important too i.e. better get in quick for 2nd phase as 1st phase 'flew out the door'
> 
> At any rate, they do allow it as I've friends who have done it!


Fair enough those are valid suggestions, but if you check out the other thread on this matter, the general legal opinion seems to be that a standard contract does not allow for this - i know any I've seen don't allow, but that's not to say it does'nt exist.


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## liteweight (21 Jun 2006)

Howitzer said:
			
		

> What did they do regarding the 20% CGT v 42% marginal income tax issue?



Capital gain. Haven't gone into it in depth with anyone, their finances being their own business, nevertheless ...I will next time!!


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## liteweight (21 Jun 2006)

Glenbhoy said:
			
		

> Fair enough those are valid suggestions, but if you check out the other thread on this matter, the general legal opinion seems to be that a standard contract does not allow for this - i know any I've seen don't allow, but that's not to say it does'nt exist.



Think standard contract is altered at signing stage. Another clause is put in. When I was buying in Spain, our solicitor seemed surprised that we hadn't asked for this clause to be put in! Bit greener then, I would if I was buying now, you never know if you might need to flip!


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## therave (21 Jun 2006)

the builder has to agree to a sub - sale and his solicitor has to then put it in the contract.. as said above allowing this does help the builder sell out phase 1 quickly and show contracts to the bank,, if you do get a sub sale and it doesn't sell then you do have to buy it.. the builder won't wait forever.this is the reason the timing of you selling your property is crucial.. the tax to pay is CGT and not income tax.. i contacted the revenue about this


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## liteweight (23 Jun 2006)

therave said:
			
		

> the builder has to agree to a sub - sale and his solicitor has to then put it in the contract.. as said above allowing this does help the builder sell out phase 1 quickly and show contracts to the bank,, if you do get a sub sale and it doesn't sell then you do have to buy it.. the builder won't wait forever.this is the reason the timing of you selling your property is crucial.. the tax to pay is CGT and not income tax.. i contacted the revenue about this


. 

Thanks for the clarification. Guess if you were forced to complete sale (stamp duty, re-sale fees etc.) it could prove to be a costly experience. Not to mention the fact that the place could lie empty for a few months while you tried to sell!


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## phoenix_n (27 Jun 2006)

[thanks CC for pointing out the thread - didnt realise what a source of information this forum is]

As i understand 'flipping' is selling on your contract to another person.

But lets say you bought a place off the plans. After a month of completion (of development) you sell the place.
Then you put your deposit down on another place, wait, and on completion you sell again.

Apart from transactions costs(and say 2 months mortgage payments and FTB so no stamp duty) and that you make a profit on the places is there any reason why one would not do this.

Just that you have minimal risk to a property crash in that you can either forsake your deposit prior to completion of sale or you are only exposed for 2 months whilst you draw down the mortgage and sell the place.

Am i missing something ?

[p.s. saw a ad last night about sprite which showed summer and was thinking why they were showing a ad about summer when it was winter here. Had forgotten it was summer!]


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## liteweight (27 Jun 2006)

phoenix_n said:
			
		

> [thanks CC for pointing out the thread - didnt realise what a source of information this forum is]
> 
> As i understand 'flipping' is selling on your contract to another person.
> 
> But if you actually bought the place, put it up for sale and sold it and bought off the plans, sold it on completion is there any catch besides transaction costs (and say 2 months mortgage). (assume FTB so no stamp duty costs)



Although you are FTB, if you sell before you've owned for 5 years there is a stamp duty clawback, so effectively you pay stamp duty! It does not make sense to me to complete and then sell. 

However, if you manage to retain FTB status (by selling PPR in order to buy another one) you will definitely not get away without stamp duty  again, depending on property price.

Another catch is that you might be competing with builder's price. Your residence will no longer be considered a new build with all the benefits that brings with regard to stamp duty etc. Also  you are assuming that place will sell quickly. Not too easy to market a 'building site' unless buyers are getting a bargain.

Hope some of this makes sense........I'm not a morning person??


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## CCOVICH (27 Jun 2006)

liteweight said:
			
		

> Although you are FTB, if you sell before you've owned for 5 years there is a stamp duty clawback, so effectively you pay stamp duty! It does not make sense to me to complete and then sell.


 
This is incorrect-you are liable for FTB/owner occupier stamp duty relief clawback if the property is rented out within 5 years other than under the rent a room scheme.


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## liteweight (27 Jun 2006)

CCOVICH said:
			
		

> This is incorrect-you are liable for FTB/owner occupier stamp duty relief clawback if the property is rented out within 5 years other than under the rent a room scheme.



I stand corrected and of course you're right CCOVICH. Told you I wasn't a morning person!


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## phoenix_n (27 Jun 2006)

Bit confused.

Do i incur any clawback if i buy the place, do not rent it out, and sell in 2/3 months ? (as a FTB)


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## CCOVICH (27 Jun 2006)

phoenix_n said:
			
		

> Bit confused.
> 
> Do i incur any clawback if i buy the place, do not rent it out, and sell in 2/3 months ? (as a FTB)


 
No, but you will lose your FTB status AFAIK.


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## Glenbhoy (27 Jun 2006)

> Bit confused.
> 
> Do i incur any clawback if i buy the place, do not rent it out, and sell in 2/3 months ? (as a FTB)


No.


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## phoenix_n (27 Jun 2006)

CCOVICH said:
			
		

> No, but you will lose your FTB status AFAIK.


 
Yes.  But as a owner-occupier of a new build you do not pay stamp duty so if you continue to buy and sell new builds, aren't you always avoiding stamp duty ?


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## CCOVICH (27 Jun 2006)

phoenix_n said:
			
		

> Yes. But as a owner-occupier of a new build you do not pay stamp duty so if you continue to buy and sell new builds, aren't you always avoiding stamp duty ?


 
Yes, as long as the floor area is under 125 square metres. There is still a tax advantage (reduced stamp duty) to being a FTB if buying a property that does not fit this criterion.

Bare in mind that if you make a business out of flipping, the Revenue will consider it as such, and a different set of tax implications will arise.


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## phoenix_n (27 Jun 2006)

CCOVICH said:
			
		

> Yes, as long as the floor area is under 125 square metres. There are still certain advantages to being a FTB.
> 
> Bare in mind that if you make a business out of flipping, the Revenue will consider it as such, and a different set of tax implications will arise.


 
For a second i thought i would have to pay stamp duty on my intended purchase. (even though i knew i didnt)

I dont see the tax man getting involved. You dont gain anything over someone who waited a year before selling but you are just minimising your risk. 

Seriously though it sounds kinda ideal to have your money always in the bank (getting better rates as time moves along) and little exposure to property market except your deposit and the initial selling period. The only downside is having to rent but it easily enough to find cheap rent if you look hard enough. Offer 6 months rent in advance and you can get amazing deals out there.


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## CCOVICH (27 Jun 2006)

I don't understand your last post at all.

What is it you intend doing, is it undertaking a once-off buy from plans and then sell before completion, or a series of such transactions?

If it is a once off, then the 'only' downside is the loss of FTB status. But as was said earlier in this thread, you need the developer and solicitors etc. onside for this to work. There should be no stamp duty  implications, but you may be liable to CGT on any gain (less allowable costs).

When I talk about the Revenue taking an interest, I am referring to a scenario when this would be happening on a regular basis, and would be deemed a 'trade' and hence attract income tax on the profit generated.


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## phoenix_n (27 Jun 2006)

CCOVICH said:
			
		

> I don't understand your last post at all.
> 
> What is it you intend doing, is it undertaking a once-off buy from plans and then sell before completion, or a series of such transactions?
> 
> ...


 
Thanks with sticking with me. Lets say i go thru to completion. I get my apartment and because new build no stamp duty as owner occupier.

I then sell in 2 months and (say) make profit of 50,000 euros.

I put another deposit on another plans . Owner occupier again so no stamp duty.
I go to completion. 2 months later i sell.  (say) 50,000 profit.

Isnt that 100,000 (less transaction cost, 4 months mortgage payments and rent paid by myself) profit that is not taxable.

(not sure if i am explaining it correctly)


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## CCOVICH (27 Jun 2006)

phoenix_n said:
			
		

> Thanks with sticking with me. Lets say i go thru to completion. I get my apartment and because new build no stamp duty as owner occupier.


 
Correct.

I then sell in 2 months and (say) make profit of 50,000 euros.[/QUOTE]

There may be a CGT liability.  Talk to your solicitor.



			
				phoenix_n said:
			
		

> I put another deposit on another plans . Owner occupier again so no stamp duty.


 
Correct, as long as the floor area is under 125 sq. metres.



			
				phoenix_n said:
			
		

> I go to completion. 2 months later i sell. (say) 50,000 profit.
> 
> Isnt that 100,000 (less transaction cost, 4 months mortgage payments and rent paid by myself) profit that is not taxable.


 
Again, there may be a CGT implication.

AND, since you appear to be making a habit of this (buying and selling) the Revenue could deem that you are in the business of buying and selling houses, and tax you as such (i.e. income tax on the gains, as opposed to (possible) CGT).


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## phoenix_n (27 Jun 2006)

Thanks CC.

But doesnt that 125sq metres a bit outdated when you take into account the price penthouses get these days.....
Was it devised to stop the practice on buying and selling (moving up the market) but does not take into account high priced penthouses.


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## CCOVICH (27 Jun 2006)

phoenix_n said:
			
		

> But doesnt that 125sq metres a bit outdated when you take into account the price penthouses get these days.....
> Was it devised to stop the practice on buying and selling (moving up the market) but does not take into account high priced penthouses.


 
I have no idea-this is more of a debate as opposed to question of fact.


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## dam099 (27 Jun 2006)

phoenix_n said:
			
		

> Seriously though it sounds kinda ideal to have your money always in the bank (getting better rates as time moves along) and little exposure to property market except your deposit and the initial selling period.


 
I'm not sure your only exposure is the deposit. In the present market of constantly rising prices builders are only too happy to let you out of the contract (either keeping your deposit or refunding it at their discretion) as they can usually sell on at the same or a higher price but if the market were to turn the other way I think they would be within their rights to force you to close the sale. If you were unable to close and they suffered financial loss as a result they may be able to sue you for damages.


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## Glenbhoy (27 Jun 2006)

> I'm not sure your only exposure is the deposit. In the present market of constantly rising prices builders are only too happy to let you out of the contract (either keeping your deposit or refunding it at their discretion) as they can usually sell on at the same or a higher price but if the market were to turn the other way I think they would be within their rights to force you to close the sale. If you were unable to close and they suffered financial loss as a result they may be able to sue you for damages.


That's what our solicitor advised us way back when we put down our deposit.


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## Art (28 Jun 2006)

While I understand that the sub-seller would have to pay no stamp duty and only would have to pay whatever CGT is due, I also believed that the purchaser of the subsale would also not have to pay stamp duty assuming that he is an owner occupier and that the property is less than 125sq metres.

Is my understanding here correct??


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## Glenbhoy (28 Jun 2006)

> Is my understanding here correct??


As long as the vendee was purchasing a non-investment property.


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