How Do I Calculate Profit on a Property Flip?

Introduction

Property flipping — buying a property, renovating it, and selling it for a profit — can be a lucrative venture. However, understanding how to calculate your profit correctly is essential. Many new property investors underestimate costs or overlook tax liabilities, which can drastically reduce returns.

Calculating profit on a property flip is not just about the difference between your purchase price and the selling price. You must also account for renovation costs, fees, taxes, and other expenses. This article explains how to calculate your true profit from a property flip and the key costs and taxes you need to consider.

Step 1: Work Out the Gross Profit

Your gross profit is the difference between the amount you sell the property for and the amount you paid to acquire it.

Formula:
Gross Profit = Selling Price (Purchase Price + Buying Costs + Renovation Costs)

Buying costs include:

• Stamp Duty Land Tax (SDLT)

• Legal and conveyancing fees

• Mortgage arrangement fees

• Survey and valuation costs

Renovation costs include materials, labour, design fees, and any professional services such as planning permission or building control.

Example:
You buy a property for £200,000, spend £30,000 on renovations, and sell it for £280,000.
Gross Profit = £280,000 (£200,000 + £30,000) = £50,000.

At first glance, this looks like a healthy return, but you still need to account for selling costs, finance costs, and tax to find your net profit.

Step 2: Deduct Selling Costs

Selling a property usually involves several fees that reduce your profit. These include:

• Estate agent commission

• Solicitor’s fees for the sale

• Marketing and photography costs

• Energy Performance Certificate (EPC) fee

If you used a property staging company or offered incentives to buyers, these should also be deducted.

Example:
If your estate agent charges 1.5% plus VAT and solicitor fees are £1,200, and the property sells for £280,000, your selling costs are approximately £5,400.

Your running total so far:
£50,000 gross profit £5,400 selling costs = £44,600 remaining.

Step 3: Include Finance Costs

If you financed the purchase or renovation with a mortgage, bridging loan, or other borrowing, you must include all related costs.

These can include:

• Mortgage interest or loan interest

• Arrangement and exit fees

• Valuation fees

• Early repayment charges

Example:
If you used a bridging loan and paid £8,000 in interest and fees, your running total becomes:
£44,600 £8,000 = £36,600.

Step 4: Deduct Holding Costs

While you own the property, you will also incur holding costs. These are ongoing expenses that occur between the time you buy and sell, such as:

• Council tax

• Utilities (gas, electricity, water)

• Insurance

• Security or maintenance costs

If the renovation takes several months, these costs can add up quickly.

Example:
If your holding costs total £2,000, your profit reduces again:
£36,600 £2,000 = £34,600.

Step 5: Account for Taxes

The final step is to calculate your tax liability, which depends on how HMRC classifies your property flipping activity.

Occasional Flips (Investors)

If you flip property occasionally as an investment, your profit is usually subject to Capital Gains Tax (CGT).

• CGT rates: 18% for basic-rate taxpayers and 24% for higher- and additional-rate taxpayers (for residential property).

• You can use your annual CGT exemption (£3,000 for 2024 25).

Example:
If your total gain is £34,600, subtract the £3,000 allowance = £31,600 taxable gain.
At 24% CGT, your tax bill is £7,584.
Net profit = £34,600 £7,584 = £27,016.

Regular Flips (Traders)

If flipping is your main business or you buy properties with the clear intention of reselling for profit, HMRC may treat you as a property trader. In this case, your profits are subject to Income Tax rather than CGT.

You will pay tax based on your total income, including property profits, at the relevant Income Tax rate (20%, 40%, or 45%). You may also need to pay Class 2 and Class 4 National Insurance if trading as a self-employed individual.

Example:
If you earn £50,000 from employment and make £34,600 profit from a property flip, your total income is £84,600.
This pushes you into the higher-rate band, meaning some or all of your property profit could be taxed at 40%.

Step 6: Calculate Your Net Profit

After accounting for all purchase, renovation, selling, finance, and tax costs, you can calculate your final net profit.

Example Summary:

• Purchase price: £200,000

• Buying costs: £5,000

• Renovation costs: £30,000

• Selling costs: £5,400

• Finance costs: £8,000

• Holding costs: £2,000

• Sale price: £280,000

Gross profit: £280,000 £235,000 = £45,000
Net profit before tax: £45,000 £15,400 = £29,600
If taxed at 24% CGT, final profit = £22,496.

Step 7: Consider Future Tax Planning

To make property flipping more tax efficient, you can:

• Offset allowable expenses, such as renovation materials, professional fees, and loan interest.

• Use both partners’ CGT allowances by owning property jointly.

• Consider operating as a limited company if you flip regularly, as corporation tax (25%) may be lower than higher-rate Income Tax.

• Keep all receipts and documentation to support your expense claims.

Common Mistakes When Calculating Property Flip Profits

• Forgetting to include stamp duty and legal fees in buying costs.

• Underestimating renovation costs or overestimating resale value.

• Ignoring mortgage or loan interest.

• Failing to account for Income Tax or CGT correctly.

• Not budgeting for unexpected costs like structural repairs or delays.

The Role of an Accountant

An accountant can help you:

• Work out accurate profit projections before purchasing a property.

• Identify all allowable expenses to reduce your tax bill.

• Determine whether you are an investor or a trader in HMRC’s view.

• Structure your business for maximum tax efficiency.

Professional advice ensures your figures are correct and that you do not overpay or underpay tax.

Conclusion

Calculating profit on a property flip involves more than comparing the buying and selling prices. You must include every cost — from renovations and finance to taxes and fees — to find your true profit.

Whether your profits are taxed as capital gains or income depends on how frequently you flip properties and your overall business activity. Keeping accurate records, claiming allowable expenses, and seeking advice from a property tax specialist can help you maximise your returns while staying compliant with HMRC.