Reinvesting profits to save tax
Question I have purchased two properties off plan and would like to sell them before completing. Presumably, there is already equity in it.
Can I save on taxes if I re-use profits to buy more property?
The question raises an interesting issue. Firstly, you will realise a profit on the sale of the properties before completion. In many cases, developers have put in place restrictions so that you are not allowed to do this and you will need to check your contract.
The more interesting issue is whether this profit is a capital gain or income.
If you are in the habit of trading property or your main business is connected with the building trade then it is very likely that you will be treated as trading in properties and hence the income will be taxable to income tax and NIC.
If this is a one-off and you do not do any more property transactions, then the Revenue may treat this as a capital gain.
Your motivation in purchasing the properties is crucial, and it is pretty clear that you bought these off-plan in order to make a profit on resale (after all, you can't live in two properties at once!).
Also, the profit realised can not be sheltered by reinvesting in more property.
If you are thinking of dealing in property on a regular basis then you may wish to consider setting up a ltd company, as you can invest the profits back into the company and save on Income Tax. You can also grow a portfolio quicker than holding properties in a sole name or as a partnership.
For more information please see our guide: How to use companies to cut your property tax bills.
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