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On19 April 2021 Simon purchased a derelict freehold house for £127,000.Legal fees of £1,800 were paid in respect of the purchase. Simon then renovated the house at a cost of £50,000,with the renovation being completed on 6 August2021.He immediately put the house up for sale, and it was sold on 27August 2021 for £260,000.Legal fees of £2,600 were paid in respect of the sale. Simon financed the transaction by a bank loan of £150,000that was taken out on 19 April 2021at an annual interest rate of 6%.Thebank loan was repaid on 28 August 2021.
SOLUTION
Simon– Income tax and NICs for 2021/22 if trading
£ £
Income 260000
Less:
costs incurred 127000
house
legal fees on acquisition 1800
renovation 50000
legal fees on sale 2600
loan interest
£150,000*6%*4/12 3000(184,400)
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Trading income/net income 75600
Personal allowance (12570)
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Taxable income 63030
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Good day,Please i don’t understand why the legal fees on acquisition and legal fees was an allowable expense when calculating the trading income.I’ll appreciate if you can explain better
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