Property investment or trading?

In the UK it’s an understatement to say we’re obsessed by house prices! Whilst no one can guarantee what’s going to happen in the immediate future rising prices over the last 20 years have seen more people invest in property either to refurbish and sell on or to hold long term to be rented out as an investment.

Whilst everyone’s circumstances are different it’s important when dealing with your tax to identify whether it’s an investment or trading activity because the tax treatment is different.

Buying a property to let out long term is usually property investment activity?

Buying a property to refurbish and sell is most likely trading activity?

Unfortunately, it’s not always as clear cut as this so the main things HMRC look at are profit seeking motive, number and frequency of similar transactions and length of ownership amongst other things.

The distinction is important especially for individuals because if the profit on sale is taxed as a trade then Income tax rates and national insurance are charged at 20%, 40% or 45% (additional rate) compared to an investment being taxed at capital gains tax on property rates of 18% or 28% which can make a big difference at higher rates of tax (2022-2023 rates).

For companies, the distinction is less important as both gains and income are taxed at the same rate but utilising losses and reliefs could be impacted.

This is quite a big topic area so you would need to look at your individual circumstances.

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August 5, 2022

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Louisa Holt