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Capital Gains Tax V's Trading Income - Interest Relief

lisajayne1lisajayne1 Registered, MAAT, AAT Licensed Accountant Posts: 50
in Tax
I have a client who has sold a second property. I am currently trying to establish if its a trade or CGT.
In the meantime I would like to clarify..
The interest on from Mortgage/Bridging Loan. Am I right in thinking this is a claimable expense if its a trade but not if its CGT?
Many Thanks
lisa

Comments

  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    Hi Lisa

    Mortgage interest is an expense deductible from revenue income (i.e. rental income). It doesn't come into the computing of a capital gain.

    Regarding your first question what makes you think it could be trading income? Was the intention to buy the property as "stock" and sell it very quickly at a profit? Is the client a property developer?
    lisajayne1
  • lisajayne1lisajayne1 Registered, MAAT, AAT Licensed Accountant Posts: 50
    >
    > Regarding your first question what makes you think it could be trading income? Was the intention to buy the property as "stock" and sell it very quickly at a profit? Is the client a property developer?

    They brought it to live in & had their house on the market .. but ended up selling this one as they got an offer - CGT
    However they quite liked doing it so I’m waiting on them to decide if they are going to do it again and make it a living out of it
  • fardfard Registered, MAAT, AAT Licensed Accountant Posts: 6
    Mortgage interest on residential property is allowable expense. But please look for percentage claim.

    If the house to be sold is principal house then there is no CG tax. If it is second home, then there is CG tax to pay. If the house is stock then only corporation tax to pay.
  • lisajayne1lisajayne1 Registered, MAAT, AAT Licensed Accountant Posts: 50

    fard said:

    Mortgage interest on residential property is allowable expense. But please look for percentage claim.




    If the house to be sold is principal house then there is no CG tax. If it is second home, then there is CG tax to pay. If the house is stock then only corporation tax to pay.

    Thank your your reply. Just in case you misread my post. This is a second property. However it still has to follow the principle under S517b BIM 60555. Once I establish this principle I will know if it is Trade or CGT. If its CGT then it will need a return filed and paid within 30 days. If its a trade then it will go on to their SA Returns at the end of the year.

    They are sole traders so there is no Corporation Tax involved. It would only be subject to Corporation Tax if they were a limited company.

    I mean this reply to help not Criticize :)
  • fardfard Registered, MAAT, AAT Licensed Accountant Posts: 6
    Thank you




    fard said:

    Mortgage interest on residential property is allowable expense. But please look for percentage claim.




    If the house to be sold is principal house then there is no CG tax. If it is second home, then there is CG tax to pay. If the house is stock then only corporation tax to pay.

    Thank your your reply. Just in case you misread my post. This is a second property. However it still has to follow the principle under S517b BIM 60555. Once I establish this principle I will know if it is Trade or CGT. If its CGT then it will need a return filed and paid within 30 days. If its a trade then it will go on to their SA Returns at the end of the year.

    They are sole traders so there is no Corporation Tax involved. It would only be subject to Corporation Tax if they were a limited company.

    I mean this reply to help not Criticize :)
    Thank you for clarification. I misunderstood the potion of the client.
    lisajayne1
  • douglasstrouddouglasstroud Registered Posts: 161
    Does not seem like trading income to me from what you say, so CGT as it was not their intention to sell it initially
    lisajayne1
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