Anyone built a house?

Axe_meister

We will be moving out of London in the next year or so, so my son can go to a specialist school that can deal with his Autism.
Now being in London and the huge price rises we have had and the fact that I have been paying off the mortgage nicely over the last 15 years, we have quite a bit of equity.
Now this has given me an idea. Why not make the cash work for us for a year or two.
i.e. Buy some land with a mortgage, an build a house for cash, then flog at a profit and repeat a couple of times.
In the meantime we can rent as renting outside of London will be considerably less than my current mortgage payments.

So a couple of questions.
a) Will I have to pay tax on the profits (i.e. does it count as a second home if you are renting whilst you are building, or do you then have to live in the property for a period before you are tax except)
b) Would you go for a more contemporary building or just a standard off the shelf design.
c) How much of a real pain is the whole thing, especially if you are building for the general market rather than a house custom built for yourself.
d) Is it a good idea in this volatile market? We can always just live in the house if the market crashes.
 

boogieman

My ex brother in law built his own place. But a) it was in Canada so the buildings regs are very different to here. b) it was 30 years ago so again things will be very different now c) he was a trained bricklayer and d) land costs peanuts over there.

I guess the practical questions you have to ask before you dive into something like this are: What's your skill level? How much can you realistically do yourself or will you need a builder on board too, with all those cost implications?  Do you have/can you get all the qualifications to do things like the electrics etc or are you going to have to sub those bits out? Can you get hold of reliable tradesmen for the bits you can't do yourself? Can you easily hire heavy equipment to do stuff like heavy lifting, drain/ footings digging etc.

It's a hugely complicated project and something I wouldn't take on lightly. In fact it's something I personally wouldn't take on at all, but maybe you're braver than me. If it's a first time build I would definitely go for an off the shelf design to avoid the inevitable problems of a custom build. I don't know about the tax implications, but being cynical, I would guess if it looks like a source of income or unearned profit, the government would certainly tax you on it. 

joeyowen

If lego counts, then yes, many. Otherwise no

Sporky

Ah; Grand Designs.

"There's no project manager, they're over budget, winter's coming and that ambitious roof's still not on!"

followed three months later by 

"It's a triumph!" as wossisface walks through a cold echo-chamber of a building.

TTony

There are probably easier ways of making money.

You'll be in direct competition with people who do this sort of thing for a living.

Axe_meister

I would have the whole thing built by a builder with a paid project manager (plus my dragon wife doing the kicking)

boogieman

Sporky said:

Ah; Grand Designs.

"There's no project manager, they're over budget, winter's coming and that ambitious roof's still not on!"

followed three months later by 

"It's a triumph!" as wossisface walks through a cold echo-chamber of a building.

Yup. I always wonder how much these projects get helped along by the the program makers so there's an end result to film. And how much they get paid for the filming? I'd be willing to live in a caravan for a few months and look suitably miserable when there's rain coming through the roof of my new house, as long as they throw millions of pounds at me. 

octatonic

Axe_meister said:

We will be moving out of London in the next year or so, so my son can go to a specialist school that can deal with his Autism.
Now being in London and the huge price rises we have had and the fact that I have been paying off the mortgage nicely over the last 15 years, we have quite a bit of equity.
Now this has given me an idea. Why not make the cash work for us for a year or two.
i.e. Buy some land with a mortgage, an build a house for cash, then flog at a profit and repeat a couple of times.
In the meantime we can rent as renting outside of London will be considerably less than my current mortgage payments.

So a couple of questions.
a) Will I have to pay tax on the profits (i.e. does it count as a second home if you are renting whilst you are building, or do you then have to live in the property for a period before you are tax except)
b) Would you go for a more contemporary building or just a standard off the shelf design.
c) How much of a real pain is the whole thing, especially if you are building for the general market rather than a house custom built for yourself.
d) Is it a good idea in this volatile market? We can always just live in the house if the market crashes.
 

Not in this country but I understand how it works here.

a) No, you nominate your primary house. Renting while building doesn't mean you have to pay capital gains tax on it in almost all cases. If you own other property though this can become complicated, but not impossible to sort.
b) In Australia I would go modern. In the UK I really wouldn't.
c) Depends on what you are trying to achieve. Broadly speaking it is a lot of work (if you project manage) or it is a lot of money (if you pay someone else to do it). It is a good way to get a house cheaper if you stick to the budget. Costs can spiral out of control much quicker than you would think.
d) I would hold off until we know what happens with the housing market around Brexit.
If you want something a bit more certain and easier then take out some equity and get an investment flat.

Should we go back to Oz we will be building the 'forever house', rather than buying one.
It isn't on the cards right now but we have an idea of what we would do.

ChuckManual

If you've never built before and/or you have no building skills, I'd say don't jump in the deep end.

Start by buying a careworn house that needs modernising, sell that, move on to a dilapidated house that needs completely renovating - then, if you haven't been put off so far, buy a house that sits on a plot big enough for you to extend sideways to either double the size of the house, or turn it into a semi-detached or an end-of-terrace.  Then, if you'd enjoyed every stage of the process so far, that's when you should consider starting a build from scratch.

This was the advice that I followed and we went from a one-bedroom flat to a five-bedroom detached house in the space of about seven years ...but then babies came along, scuppered the final stage and we're still in the five-bedder.  That was ten years ago though and we're now looking at potentially having to move to get the kids in a decent senior school, so building is back on the cards ...but we're only considering it because of the experience we've accrued so far - and the chances are we'll actually go back a stage and find a house to extend first, as it'll be easier on the family as a whole.

I've always found the process fun though.  Whatever you end up doing, I'm sure you'll enjoy it too!

RedRabbit

octatonic said:

Axe_meister said:

We will be moving out of London in the next year or so, so my son can go to a specialist school that can deal with his Autism.
Now being in London and the huge price rises we have had and the fact that I have been paying off the mortgage nicely over the last 15 years, we have quite a bit of equity.
Now this has given me an idea. Why not make the cash work for us for a year or two.
i.e. Buy some land with a mortgage, an build a house for cash, then flog at a profit and repeat a couple of times.
In the meantime we can rent as renting outside of London will be considerably less than my current mortgage payments.

So a couple of questions.
a) Will I have to pay tax on the profits (i.e. does it count as a second home if you are renting whilst you are building, or do you then have to live in the property for a period before you are tax except)
b) Would you go for a more contemporary building or just a standard off the shelf design.
c) How much of a real pain is the whole thing, especially if you are building for the general market rather than a house custom built for yourself.
d) Is it a good idea in this volatile market? We can always just live in the house if the market crashes.
 

Not in this country but I understand how it works here.

a) No, you nominate your primary house. Renting while building doesn't mean you have to pay capital gains tax on it in almost all cases. If you own other property though this can become complicated, but not impossible to sort.

Huge over simplification here I think.

From what Axe_meister has said it sounds like he's be building the house and selling it as soon as it's complete, never actually living in it.  I don't think that would ever qualify as a main residence.

To be honest what is being described doesn't sound like a capital gains issue at all.  It sounds like a trade to me, especially with the intention of repeating the process, and would therefore be subject to income tax.

@Axe_meister - if you are serious about pursuing this I would strongly advise speaking to an accountant.  Property taxes aren't straight forward and there would also be VAT and CIS to consider as well as the most efficient way of extracting profits (i.e sole trader/partnership vs ltd company).  If you're moving anywhere near Manchester I'd be happy to put you in touch with one of the partners at our place.  

Sesh

boogieman said:

Sporky said:

Ah; Grand Designs.

"There's no project manager, they're over budget, winter's coming and that ambitious roof's still not on!"

followed three months later by 

"It's a triumph!" as wossisface walks through a cold echo-chamber of a building.

Yup. I always wonder how much these projects get helped along by the the program makers so there's an end result to film. And how much they get paid for the filming? I'd be willing to live in a caravan for a few months and look suitably miserable when there's rain coming through the roof of my new house, as long as they throw millions of pounds at me. 

The wife generally ends up pregnant too. I think Kevin McCloud helps out in more ways than you'd think.

TTony

Axe_meister said:

a) Will I have to pay tax on the profits (i.e. does it count as a second home if you are renting whilst you are building, or do you then have to live in the property for a period before you are tax except)
 

Are you an MP?

JohnnyPlectrum

If you're not doing a huge chunk of it yourself and you're paying for Architects, Engineers, Project Managers and so on then you'll minimise your profit but probably still end up better off than having bought it from a developer. New build is vat free. You'll pay capital gains tax on the sale unless you live in it for a certain length of time IIRC.
When I built mine the new 3 bed detached on our estate were for sale at £90k and we built a 4 bed, triple garaged, attic trussed roof dwelling for £80k that was instantly worth £110k. However, we designed it, engineered it, PM'd it, second fixed it and laid drains, lawns, etc
Hope that helps a little.

Chalky

Years ago I pretty much doubled the size of my house with a very large extension.  By designing and project managing it myself I saved 40% compared to quotes I got for the full service. I also made on the fly decisions about changes that inevitably crept in. The main thing was a) allow time because hurry = expensive, and b) give a bloke a week or so of work and he's happy and hardworking. Tie him in for more than that and he'll get bored and lazy.

octatonic

RedRabbit said:

octatonic said:

Axe_meister said:

We will be moving out of London in the next year or so, so my son can go to a specialist school that can deal with his Autism.
Now being in London and the huge price rises we have had and the fact that I have been paying off the mortgage nicely over the last 15 years, we have quite a bit of equity.
Now this has given me an idea. Why not make the cash work for us for a year or two.
i.e. Buy some land with a mortgage, an build a house for cash, then flog at a profit and repeat a couple of times.
In the meantime we can rent as renting outside of London will be considerably less than my current mortgage payments.

So a couple of questions.
a) Will I have to pay tax on the profits (i.e. does it count as a second home if you are renting whilst you are building, or do you then have to live in the property for a period before you are tax except)
b) Would you go for a more contemporary building or just a standard off the shelf design.
c) How much of a real pain is the whole thing, especially if you are building for the general market rather than a house custom built for yourself.
d) Is it a good idea in this volatile market? We can always just live in the house if the market crashes.
 

Not in this country but I understand how it works here.

a) No, you nominate your primary house. Renting while building doesn't mean you have to pay capital gains tax on it in almost all cases. If you own other property though this can become complicated, but not impossible to sort.

Huge over simplification here I think.

From what Axe_meister has said it sounds like he's be building the house and selling it as soon as it's complete, never actually living in it.  I don't think that would ever qualify as a main residence.

To be honest what is being described doesn't sound like a capital gains issue at all.  It sounds like a trade to me, especially with the intention of repeating the process, and would therefore be subject to income tax.

@Axe_meister - if you are serious about pursuing this I would strongly advise speaking to an accountant.  Property taxes aren't straight forward and there would also be VAT and CIS to consider as well as the most efficient way of extracting profits (i.e sole trader/partnership vs ltd company).  If you're moving anywhere near Manchester I'd be happy to put you in touch with one of the partners at our place.  

It depends on how quickly you repeat the process.
If you sell as soon as you finish then yes it could be argued it is a business and capital gains might be due.
Live in it a year or so (the timing is actually arbitrary) and you won't attract CGT.

These are the criteria:

1. Private Residence Relief
You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

• you have one home and you’ve lived in it as your main home for all the time you’ve owned it

• you haven’t let part of it out - this doesn’t include having a single lodger

• you haven’t used part of it for business only

• the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total

• you didn’t buy it just to make a gain

You don’t need to do anything. You’ll automatically get a tax relief called Private Residence Relief.
If you don’t meet all these criteria you may have to pay some Capital Gains Tax.

The last one is something that is very much up to interpretation.
It is up to HMRC to prove that you have done it purely as a money making exercise.
It is relatively easy to avoid this simply by living in it for a period of time.

I agree he should speak to an accountant though.

Evilmags

Budget about 100,000 cost per 100 square meters. 

Axe_meister

Interesting so for the Equity I have I could build one of these
http://houseplansdirect.co.uk/houseplans/five-bedroom-house-plans/rowlestone-detached-house-design/?sf_action=get_results&_sfm_area_m2=250+300

Looking at current house prices if I sold one of these I could nearly double my money

Roland

There is another option: rent out your London place as a continued source of income, and buy an existing house in the country. If you play your cards right you have an appreciating asset in London which covers your mortgage in the country.

RedRabbit

octatonic said:

RedRabbit said:

octatonic said:

Axe_meister said:

We will be moving out of London in the next year or so, so my son can go to a specialist school that can deal with his Autism.
Now being in London and the huge price rises we have had and the fact that I have been paying off the mortgage nicely over the last 15 years, we have quite a bit of equity.
Now this has given me an idea. Why not make the cash work for us for a year or two.
i.e. Buy some land with a mortgage, an build a house for cash, then flog at a profit and repeat a couple of times.
In the meantime we can rent as renting outside of London will be considerably less than my current mortgage payments.

So a couple of questions.
a) Will I have to pay tax on the profits (i.e. does it count as a second home if you are renting whilst you are building, or do you then have to live in the property for a period before you are tax except)
b) Would you go for a more contemporary building or just a standard off the shelf design.
c) How much of a real pain is the whole thing, especially if you are building for the general market rather than a house custom built for yourself.
d) Is it a good idea in this volatile market? We can always just live in the house if the market crashes.
 

Not in this country but I understand how it works here.

a) No, you nominate your primary house. Renting while building doesn't mean you have to pay capital gains tax on it in almost all cases. If you own other property though this can become complicated, but not impossible to sort.

Huge over simplification here I think.

From what Axe_meister has said it sounds like he's be building the house and selling it as soon as it's complete, never actually living in it.  I don't think that would ever qualify as a main residence.

To be honest what is being described doesn't sound like a capital gains issue at all.  It sounds like a trade to me, especially with the intention of repeating the process, and would therefore be subject to income tax.

@Axe_meister - if you are serious about pursuing this I would strongly advise speaking to an accountant.  Property taxes aren't straight forward and there would also be VAT and CIS to consider as well as the most efficient way of extracting profits (i.e sole trader/partnership vs ltd company).  If you're moving anywhere near Manchester I'd be happy to put you in touch with one of the partners at our place.  

It depends on how quickly you repeat the process.
If you sell as soon as you finish then yes it could be argued it is a business and capital gains might be due.
Live in it a year or so (the timing is actually arbitrary) and you won't attract CGT.

These are the criteria:

1. Private Residence Relief
You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

• you have one home and you’ve lived in it as your main home for all the time you’ve owned it

• you haven’t let part of it out - this doesn’t include having a single lodger

• you haven’t used part of it for business only

• the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total

• you didn’t buy it just to make a gain

You don’t need to do anything. You’ll automatically get a tax relief called Private Residence Relief.
If you don’t meet all these criteria you may have to pay some Capital Gains Tax.

The last one is something that is very much up to interpretation.
It is up to HMRC to prove that you have done it purely as a money making exercise.
It is relatively easy to avoid this simply by living in it for a period of time.

I agree he should speak to an accountant though.

Unless the time scale is fairly large I think it would be fairly easy for HMRC to determine that the sole intention was to make a gain.  If you do it once then it'd be fairly easy to justify selling a house you custom made for yourself.  Doing it a second time even a few years later is harder position to defend.  Any more than that and I think HMRC would probably take the view that you had entered into a trade even if it wasn't your intention (though it clearly seems to be the intention here).  In my opinion this could be the case even if you were to live in it for a short time.  We're not talking about widgets here, the shear scale of the project would mean that enough thought should have gone into it that, if you were building for yourself, you'd be looking to stay there for a significant amount of time.  Of course, you could make a fundamental error that you couldn't live with and couldn't be easily rectified but doing so a second or third time would suggest there was something more going on. 

As mentioned previously, if it was deemed to be a trade it would be subject to income tax rather than CGT.  Depending on actual profit and other income this could have a serious impact on the overall profitability of the project.  If it is a trade (which I strongly suspect it would be) then clearly the CGT rules on private residence relief are out the window.

Unless I've misinterpreted OP's intentions, what you are suggesting is veering dangerously close to tax evasion in this situation.  Declaring it as CGT rather than income tax is one thing and might be over looked as an honest mistake (though that doesn't guarantee that they'd look any more favourably on the error) but not declaring it at all would most likely get you in some pretty serious strife.

I'm not coming at this from a position of complete ignorance - I'm an accountant who has worked with a number of property developers over the years and, probably more importantly, have a lot of experience of how HMRC works.

@Axe_meister - regardless of whether my interpretation of things is correct or not please do get the tax side of things sorted before starting anything.  Any accountant worth his salt would offer a free consultation and I'd suggest you want some one who either is an expert in the area or has access to someone who is.

octatonic

I'll defer to your greater experience then.
I'm a landlord- we don't sell properties, as a rule, so CGT never comes up as an issue in that regard, just regular income tax.

I thought I had a fairly good understanding of how it works, but I'm happy to be corrected, as I seem to have been here.
Thanks.

RedRabbit

There may be a way to approach this that means that CGT applies but with out a lot of ground work I do think that income tax would be the default position here.