Developers Do Not Have To Pay SDLT On Flips

simon

Simon Misiewicz

24th October 2017

Want to mitigate the payment of SDLT as a property developer?

Do you look to help investors to sell their properties?

As I mentioned in a previous article here, the new Stamp Duty Land Tax (SDLT) require all property investors and developers to pay not only the normal SDLT rates, they will also have to pay the 3% SDLT surcharge.

This can be a significant cost to a lot of property developers and indeed make some deals unprofitable.

SDLT: Acquisition by house-building company from individual acquiring new dwelling FA03/SCH6A/PARA1 

Property developers that carry out property exchange will not need to pay SDLT on the house that they are buying. Sheila is looking to sell her house and she decides to buy a new home from a property developer. They eventually are to do a part exchange on the old-for-new basis.

The property developer will not need to pay SDLT on the purchase of the older property. This is provided the following conditions are met:

  • the individual
    • occupied the old dwelling as their main residence in the period of two years of  acquisition
    • acquires a new dwelling from the house-building company (property developer)
    • intends to occupy the new dwelling as their only or main residence
  • each acquisition is entered into in consideration of the other
  • the area of land acquired by the house-building company does not exceed the permitted area

The amount of chargeable consideration is the difference between the market value of the permitted area, that is the old dwelling and grounds allowed, and the total market value of the old dwelling including all the land.

Download your property tax guide here, written by our property accountants

SDLT: Acquisition by property trader from an individual where the chain of transactions breaks downFA03/SCH6A/PARA4

Now let’s imagine that someone is looking to sell their house. It is not that difficult to imagine many of you may have been involved in a property purchase transaction that subsequently fails.

At that time, the seller may have already identified a property to buy and will likely to feel dissatisfaction with the whole process.

If a property developer was to hear about the broken-down transaction and continues to buy it, then there is no SDLT charge by the developer whatsoever – provided that the below conditions are met as outlined in legislation:

  • the individual has made arrangements to sell the old dwelling and acquires another dwelling
  • the arrangements to sell the old dwelling fails
  • the acquisition of the old dwelling is made for the purposes of enabling the individual’s acquisition of the other dwelling to proceed
  • the property trader makes the acquisition in the course of a business that consists of or includes acquiring dwellings from individuals in the above circumstances
  • the individual
    •  occupied the old dwelling as their main or only residence at some time in the two years prior to the date of purchase by the property trader
    • intends to occupy the other dwelling as their only or main residence
  • the area of land acquired by the property trader does not exceed the permitted area

It is imperative that you understand the above. You will gain confidence and reassurance by working with one of our property accountants to ensure that you meet the conditions.

Relief under this section will be withdrawn if the property trader

  • spends more than the permitted amount on a refurbishment of the old dwelling
  • grants a lease or licence of the old dwelling
  • permits any of its principals or employees, or any person connected with any of its principals or employees, to occupy the old dwelling

As you can see that the above means that the property must be purchased after the initial sale fell through, refurbished with minimal investment and then sold. All these transactions must be done within a Limited Company. Ideally, your property accountant will be looking after the tax returns for the limited company.

SDLT relief cannot be given on the first transaction within the company by the developer.

SDLT: Acquisition by property trader from personal representatives FA03/SCH6A/PARA3

Legislation also covers a scenario where a property trader purchases a dwelling from the personal representatives of a deceased individual – the purchase will be exempt from Stamp Duty Land Tax if all of the following conditions are met:

  • the purchase is in the course of a business  consisting of  dwellings from personal representatives
  • the deceased individual occupied the dwelling as his main or only residence at some time in the two years ending with the date of his death and
  • the area of land acquired does not exceed the permitted area

ICTA88/S839 applies for the purpose of determining whether a company is connected with a house-building company a property trader means a

  • company
  • limited liability partnership
  • a partnership whose members are all companies that carry out the business of buying and selling properties. The relief is not available to sole traders, individuals or individuals in partnership. The property developer should complete a land transaction return to claim the relief available and the consideration paid should be shown at Box 10 of form SDLT1.

You may want to work with your property accountant to ensure that the necessary forms are completed correctly.

Other SDLT reliefs

There are other ways in which SDLT may be decreased. Our property accountants have provided you with additional links on how this may be achieved:

How can our property accountants help you next?

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