Ground-up development and buy-to-sell flips break the mental model most investors bring from buy-to-let. There is usually no Capital Gains Tax at all — because HMRC treats the activity as a trade, and taxes the whole margin as income. VAT then drives the economics of the entire scheme.
Why there is no CGT
In the worked two-unit flip — £300,000 site, £180,000 build, sold for £620,000 — the £115,000 profit is trading profit. Run through a company it attracts roughly £28,750 of Corporation Tax at 25%, and the CGT line is £0. This is not a loophole; it is simply that a trade produces income, and income is taxed as income.
Trading or investing? HMRC decides on the facts
Intention and pattern of activity are everything. Buying to sell quickly, running multiple projects and short holding periods point to trading. Buying to hold and let points to investment and CGT — the dividing line that also governs BRR/BRRR projects.
VAT: the make-or-break number
- New-build residential sales are zero-rated — no VAT on the sale, but you can still recover input VAT on build costs.
- Conversions (e.g. commercial to residential) are typically reduced-rated at 5%.
- Pure commercial works are standard-rated at 20%, and recovery depends on the opt-to-tax position covered in the commercial property guide.
CIS, CIL and Section 106
If you pay subcontractors you likely fall under the Construction Industry Scheme and must operate CIS deductions. The Community Infrastructure Levy and Section 106 obligations are planning-linked costs rather than taxes, but they can be large enough to sink an appraisal — build them in early.
If you decide to hold instead
Change your mind and keep a finished unit to let, and you step out of trading and into the investment world — buy-to-let taxation, Section 24 and eventual CGT. The tax treatment follows what you actually do, not what you originally planned.