Self Build houses repeat selling

[quintain]

A possible client of my self build plots initially wants to purchase a plot, build his new family home and upon him claiming his VAT refund and then take out a normal mortgage at the same time and then as quickly as he can sell the newly built home.

Then buy another plot, build, mortgage and sell again; he is hopeful of doing this on 5 occasions over about 5 years. He will live in each new built property.

He is not a builder, nor is he employed by a firm with any association to the building trade, his intention is to build to a high standard, I believe he will do so.

He has asked me and I now ask this forum will the tax authority accept him selling a number of 'private, family homes' over a small-(ish) number of years and treat them for tax purposes as private house sales.

 

I welcome any help on this matter.

[PeterW]

He will most likely trip over the CIL rules and that will cost him. Also, if he’s not a builder or developer or have any links then his profit will be minuscule as there isn’t 20% profit in every new house that people think there is. 
 

Chances are his mortgage interest will swallow any profits he makes. 

[newhome]

29 minutes ago, quintain said:

Then buy another plot, build, mortgage and sell again; he is hopeful of doing this on 5 occasions over about 5 years. He will live in each new built property.

I think that the chance of someone who is not a builder building 5 houses in 5 years is optimistic to an extreme. Regardless of the tax position he will presumably be getting a self build warranty that will be needed if his buyers need a mortgage. Most, if not all, have a clause in them requiring the owner to live in the property for at least a year post completion to prevent them from being used by developers to build houses to sell on. 
 

If the LA has implemented CIL then he can claim exemption as a self builder but he then has to live in the property for 3 years post completion otherwise he will lose the exemption and full CIL becomes payable. 
 

The rules for reclaiming VAT require you to have built the house for you or your family to live in. From the claim form:

 

You are not eligible to use this Scheme if you:

have constructed a property that either you, or your relatives, do not intend to live in yourselves but intend to sell or let out or use for any other business purpose
 

 HMRC appear to use the term ‘intent’ as the test here. If they deem that the property was built with the intention to sell then they could decide that it fails the test to be eligible for a VAT reclaim. That could be after 2 or even 3 houses have been built but losing the VAT refund is not something that most people will want to take a gamble on. 

[quintain]

Thanks newhome

 

Yes I agree with your thoughts on the 5yr timing.

No CIL in our area at present.

Your info about 12 month living in will be a major problem and shoot hi 5 yr programme.

 

Thank you for your help.

[PeterW]

If you consider a 12 Month build scheme then he has to live somewhere but I think the 12 monthly VAT claims may become a challenge. Also finding plots to service that plan will be a bigger issue assuming his plan is to make money. 

[Temp]

Can HMRC decide he is really a "Mainstream Contractor" under the Construction Industry Scheme (CIS)..

 

https://www.self-build.co.uk/make-money-self-build/

 

Quote

As far as the HMRC is concerned, if you’re looking to make a profit out of property development, you’re undertaking a taxable business activity – so it will class you as a ‘mainstream contractor’ (ie. a property developer or speculative builder).  

A qualifying contractor has to register with the Construction Industry Scheme (CIS) before undertaking any project activity, and must be prepared to make monthly returns to HMRC on all payments to sub-contractors (or to account for gross payments).
 

 

 

https://www.dobanti.com/articles/can-you-make-money-by-self-building/

 

Quote

Their responsibility is to make taxable deductions when paying sub-contractors where appropriate or to account for gross payments made to all sub-contractors who have gross-payments status.

 

 

 

 

He should read the rest of those links as well.

 

Edited May 24, 2021 by Temp

[Temp]

And as someone pointed out to me once.. if they decide he is making his living from building houses they will charge income tax not cgt on the profits.. 

 

https://thepropertygroupsite.com/2019/10/03/capital-gains-warning-for-self-builders/

 

“Further, serial house builders or doer-uppers can enter into the income tax arena rather than CGT,” says Imogen, “and income tax tends to be at higher rates than CGT”.

 

[nod]

It would be a big ask for Five in five years 

My understanding is there no minimum time you need to live in a property Only that it is your main residence ie register and pay utilities and CT 

To do this he would have to fund at least the first build out of his own pocket and hope prices carry on rising 

[Ferdinand]

8 hours ago, quintain said:

A possible client of my self build plots initially wants to purchase a plot, build his new family home and upon him claiming his VAT refund and then take out a normal mortgage at the same time and then as quickly as he can sell the newly built home.

Then buy another plot, build, mortgage and sell again; he is hopeful of doing this on 5 occasions over about 5 years. He will live in each new built property.

He is not a builder, nor is he employed by a firm with any association to the building trade, his intention is to build to a high standard, I believe he will do so.

He has asked me and I now ask this forum will the tax authority accept him selling a number of 'private, family homes' over a small-(ish) number of years and treat them for tax purposes as private house sales.

 

I welcome any help on this matter.

 

If he can do that, then your plots are too cheap. 

 

You need to choose a price for your plots such that you get the profit.

 

?

[Bonner]

The only way developers make money is buying land in bulk and economies of scale from building multiple houses. Everyone I know in the trade told me they cannot make a profit on an individual plot / single house build (partly due to self builders paying a premium). Ambitious timescales aside, I am quite sure this scheme would not keep under the radar for tax and other liabilities. Five houses in 15 years maybe ...

[Dave Jones]

8 hours ago, quintain said:

A possible client of my self build plots initially wants to purchase a plot, build his new family home and upon him claiming his VAT refund and then take out a normal mortgage at the same time and then as quickly as he can sell the newly built home.

Then buy another plot, build, mortgage and sell again; he is hopeful of doing this on 5 occasions over about 5 years. He will live in each new built property.

He is not a builder, nor is he employed by a firm with any association to the building trade, his intention is to build to a high standard, I believe he will do so.

He has asked me and I now ask this forum will the tax authority accept him selling a number of 'private, family homes' over a small-(ish) number of years and treat them for tax purposes as private house sales.

 

I welcome any help on this matter.

 

get a good accountant.

 

build and sell a house every year HMRC will come down on him no question.

[Scoobyrex]

Accountant advice is to live in the house for 24 months from completion, moving on has to be for a valid reason e.g new job, move to different area, downsize ect.  Multiple self builds in the same location will be treated as a developer not a self build.