Any tax due on building 2 x semi-d & selling one?

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Pia Bang

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Hi everyone,

Hope someone can help me out with this query:

My OH has a site on which he has received planning permission for 2 semi-detached houses. He plans to build these houses this year and hopes to sell one of them and keep the other one.

He owns the site outright as he purchased it a few years ago.

The site cost was €70k and he hopes to build both houses for approximately €170k giving a total cost of approx €240k. So if he sells one house for €225k, he won't actually make any cash profit but obviously he will have a house out of it.

Does anyone know if he will have to pay tax under these circumstances?

Thanks,
Pia
 
Pia Bang said:
The site cost was €70k and he hopes to build both houses for approximately €170k giving a total cost of approx €240k. So if he sells one house for €225k, he won't actually make any cash profit but obviously he will have a house out of it.
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But he would be making a profit on the property that is sold.
Does anyone know if he will have to pay tax under these circumstances?
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I would expect there to be at least a CGT issue here. VAT and stamp duty may also be relevant. Best to get independent, professional advice.
 
Revenue may treat this as a trade, and therefore he could be taxed at 41% on all or part of the pofit. As Clubman stated, professional advice is necessary.
 
Okay, thanks guys, I thought it might be more straightforward. I'll definitely get him to seek professional advice.

Pia
 
Regardless of how he is taxed (CGT or income tax) the Revenue would likely seek to apportion the costs accross the two properties in some manner (e.g. 50:50 or some other approximation depending on the relative value of the two properties).

The CGT code definitely has provisions for how to deal with apportioning the cost of property in partial sale situations, if it was judged to be a trade the income tax situation might be a bit more complicated but I'm sure they would apportion it somehow.
 
If your advisor believes that this is a trade and taxable at 41%, it might be worth holding on to the property and trying to rent it out. This will show the Revenue that your intention wasn't to turn a quick profit i.e. carring on a trade.
You can always turn around in a year or so and sell the property and Revenue will normally accept that you simply changed your mind and don't want to be a Landlord anymore, you would then only pay CGT.
Having long term finance in place will strengthen your case if you go down this route.
 
If the sale of the house is treated as a trade then you also need to declare VAT on this sale (less purchases vat obviously). I believe given the circumstances that you have outlined that this is a trade and vat and income tax applies to the sale. As the previous poster pointed out you should consider holding onto the house for a while. One off developments as outlined here are rarely worth the trouble when you take the VAT and income tax out of your profit.
 
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