How Much Tax Will You Pay When You Flip a House in the UK?

Yes, you pay tax when you flip a house, but you are paying tax on the profit you make, not on the whole sale price.

There are two points at which I want to understand the tax before I buy: what it will cost me to get into the deal, and what tax I am likely to pay on the profit when I get out.

I am not an accountant, and this is not personal tax advice. Use this to understand the questions, then get your accountant to apply them properly to your own circumstances.

Think about the tax when you buy and the tax on the profit

The first one is Stamp Duty Land Tax, which you normally pay when you buy the property.

How much you pay depends on the property, the purchase price, whether you already own another property and how you are buying it. Additional residential properties are charged at higher SDLT rates, so this needs to be in your deal analysis and cash flow from the beginning.

Do not calculate the profit on a flip and then remember Stamp Duty afterwards. It is part of the cost of buying the deal.

The second tax is the tax on the profit you make when you sell.

This is where the structure you use becomes important.

Personal name or limited company?

You can buy and flip a property personally or through a limited company, but this is a conversation to have with your accountant before you buy, rather than once you have sold it and are wondering what to do with the profit.

If you flip through a limited company, the company's trading profit will normally be subject to Corporation Tax. You then have a second question to consider: how you eventually take money out of the company, whether through salary, dividends, pension contributions or another appropriate route.

That is why I would work the structure out with an accountant before buying the property rather than trying to reorganise everything afterwards.

Put tax into the deal analysis before you buy

For me, tax is simply another cost of doing the deal.

If I am analysing a flip, I want to understand the purchase price, refurbishment, finance, legal costs, Stamp Duty, selling costs and likely tax position before I decide whether there is enough profit in it.

What I do not want is a spreadsheet showing me a lovely profit which only exists because I have forgotten several thousand pounds of costs.

Tax rates, allowances and SDLT bands change, so I would not learn a set of figures from an old property video and assume they are still correct. Check the current figures on GOV.UK and get your accountant to confirm anything material before you complete.

Don't let tax planning become a reason not to make money

I see people worrying enormously about how much tax they might pay before they have even found a profitable property.

That is the wrong problem.

I would much rather have a profitable deal and a tax bill than spend six months worrying about tax on a profit I have not made.

The important thing is to understand the likely tax, put it into your numbers and set the money aside rather than mentally spending everything sitting in the bank account.

A good habit is to keep your bookkeeping up to date and regularly move money aside for tax. Then, when the bill arrives, it is money you have already allowed for rather than an unpleasant surprise.

Where to go from here

Before your first flip, speak to an accountant who understands property and ask them to help you decide whether you should buy personally or through a company, what tax is likely to apply to the profit and what SDLT you should allow for.

Then put those costs into the deal analysis before you make the offer.