Buying off plan and "flipping"

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Privinv

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Hi

I have a deposit on a house currently being built, purchase price being €250,000. I am interested in "flipping" - selling on. Value on completion in 2 months time will be more than the €250k. I have heard of this being done without incurring stamp duty and CGT, is this possible?
 
it can be done but you will need a very good solicitor,compliant builder and auctioneer/the auctioneer and solicitor will be laughing as thye will be getting paid twice for selling the contract on... you are at the mercy of the auctioneer really as you will be reliant on them to sell your property or point out to prospective buyers that you have one to sell..usually they will do you a good deal on the fee and add you to their "list" for future ...the cgt part i am not sure of unless your are a first time buyer.. at the end if you do buy it and then sell it after a month you will need to add the solrs and auctioneers fees to the 250k plus any stamp you incur so to then break even you would realisticallly need to sell for approx estimated 270k.. the good thing abou this flipping is if you get on well with the auctioneer and the builder is doing the estate/properties in stages then the price will rise but timing is crucial.. i hope this helps
 
Well if you do avoid CGT as it may be construed as not a property transaction, then surely the profit accrued would then simply be seen as part of the flippers income, and as such be liable to tax at the flippers marginal rate.

I think I'd declare it as CGT at 20% rather than income at 42%.
 
Find this a bit confusing. When do you officially own a property..is it when you sign contracts or when you hand over the money? If it's upon final payment and you never reach that stage, then how can it be a capital gain?
 
liteweight said:
Find this a bit confusing. When do you officially own a property..is it when you sign contracts or when you hand over the money? If it's upon final payment and you never reach that stage, then how can it be a capital gain?
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Exactly, it's simply income, and should be taxed at your marginal rate.
 
Howitzer said:
Exactly, it's simply income, and should be taxed at your marginal rate.
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I agree it will get caught one way or the other as either income or a capital gain but I think there is potential to regard it as a capital gain.

By paying a booking deposit you are buying a contract to purchase at a fixed price and then when you flip you are selling your interest in this contract on to a third party so you could argue it is similar to a financial instrument such as a share (or probably more closely a derivative of some sort similar to an option).
 
I agree it will get caught one way or the other as either income or a capital gain but I think there is potential to regard it as a capital gain.

By paying a booking deposit you are buying a contract to purchase at a fixed price and then when you flip you are selling your interest in this contract on to a third party so you could argue it is similar to a financial instrument such as a share (or probably more closely a derivative of some sort similar to an option).
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That would be my take on it too - it would be unlikely to be classifed as income unless it the 'flipper' was doing this on a large scale. However as discussed elsewhere, I don't see why a developer would allow this sub-sale of a contract to take place.
 
Glenbhoy said:
That would be my take on it too - it would be unlikely to be classifed as income unless it the 'flipper' was doing this on a large scale. However as discussed elsewhere, I don't see why a developer would allow this sub-sale of a contract to take place.
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I presume when a developer is selling off plans he needs cash flow and to possibly prove to bank that development is viable. Cash in hand might be better than a little bit extra down the road. I suppose public perception of the development at its first stage might be important too i.e. better get in quick for 2nd phase as 1st phase 'flew out the door'

At any rate, they do allow it as I've friends who have done it!
 
liteweight said:
I presume when a developer is selling off plans he needs cash flow and to possibly prove to bank that development is viable. Cash in hand might be better than a little bit extra down the road. I suppose public perception of the development at its first stage might be important too i.e. better get in quick for 2nd phase as 1st phase 'flew out the door'

At any rate, they do allow it as I've friends who have done it!
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Fair enough those are valid suggestions, but if you check out the other thread on this matter, the general legal opinion seems to be that a standard contract does not allow for this - i know any I've seen don't allow, but that's not to say it does'nt exist.
 
Howitzer said:
What did they do regarding the 20% CGT v 42% marginal income tax issue?
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Capital gain. Haven't gone into it in depth with anyone, their finances being their own business, nevertheless ...I will next time!!
 
Glenbhoy said:
Fair enough those are valid suggestions, but if you check out the other thread on this matter, the general legal opinion seems to be that a standard contract does not allow for this - i know any I've seen don't allow, but that's not to say it does'nt exist.
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Think standard contract is altered at signing stage. Another clause is put in. When I was buying in Spain, our solicitor seemed surprised that we hadn't asked for this clause to be put in! Bit greener then, I would if I was buying now, you never know if you might need to flip!
 
the builder has to agree to a sub - sale and his solicitor has to then put it in the contract.. as said above allowing this does help the builder sell out phase 1 quickly and show contracts to the bank,, if you do get a sub sale and it doesn't sell then you do have to buy it.. the builder won't wait forever.this is the reason the timing of you selling your property is crucial.. the tax to pay is CGT and not income tax.. i contacted the revenue about this
 
therave said:
the builder has to agree to a sub - sale and his solicitor has to then put it in the contract.. as said above allowing this does help the builder sell out phase 1 quickly and show contracts to the bank,, if you do get a sub sale and it doesn't sell then you do have to buy it.. the builder won't wait forever.this is the reason the timing of you selling your property is crucial.. the tax to pay is CGT and not income tax.. i contacted the revenue about this
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Thanks for the clarification. Guess if you were forced to complete sale (stamp duty, re-sale fees etc.) it could prove to be a costly experience. Not to mention the fact that the place could lie empty for a few months while you tried to sell!
 
[thanks CC for pointing out the thread - didnt realise what a source of information this forum is]

As i understand 'flipping' is selling on your contract to another person.

But lets say you bought a place off the plans. After a month of completion (of development) you sell the place.
Then you put your deposit down on another place, wait, and on completion you sell again.

Apart from transactions costs(and say 2 months mortgage payments and FTB so no stamp duty) and that you make a profit on the places is there any reason why one would not do this.

Just that you have minimal risk to a property crash in that you can either forsake your deposit prior to completion of sale or you are only exposed for 2 months whilst you draw down the mortgage and sell the place.

Am i missing something ?

[p.s. saw a ad last night about sprite which showed summer and was thinking why they were showing a ad about summer when it was winter here. Had forgotten it was summer!]
 
phoenix_n said:
[thanks CC for pointing out the thread - didnt realise what a source of information this forum is]

As i understand 'flipping' is selling on your contract to another person.

But if you actually bought the place, put it up for sale and sold it and bought off the plans, sold it on completion is there any catch besides transaction costs (and say 2 months mortgage). (assume FTB so no stamp duty costs)
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Although you are FTB, if you sell before you've owned for 5 years there is a stamp duty clawback, so effectively you pay stamp duty! It does not make sense to me to complete and then sell.

However, if you manage to retain FTB status (by selling PPR in order to buy another one) you will definitely not get away without stamp duty again, depending on property price.

Another catch is that you might be competing with builder's price. Your residence will no longer be considered a new build with all the benefits that brings with regard to stamp duty etc. Also you are assuming that place will sell quickly. Not too easy to market a 'building site' unless buyers are getting a bargain.

Hope some of this makes sense........I'm not a morning person??
 
liteweight said:
Although you are FTB, if you sell before you've owned for 5 years there is a stamp duty clawback, so effectively you pay stamp duty! It does not make sense to me to complete and then sell.
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This is incorrect-you are liable for FTB/owner occupier stamp duty relief clawback if the property is rented out within 5 years other than under the rent a room scheme.
 
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