Reduce Stamp Duty Land Tax As A Property Developer

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Simon Misiewicz

11th January 2022

What are the Stamp Duty Land Tax costs for Property Developers

Stamp Duty Land Tax, or SDLT to some people, is a tax transaction cost when you buy a property to develop. There are two types of SDLT. The first type is residential use Stamp Duty Land Tax rate.

Stamp Duty is a scaled rate tax charge.

Up to £125,000Zero
From £125,001 to £250,0002%
From £250,001 to £925,0005%
From £925,001 to £1.5m10%
Over £1.5m12%

Any UK property developer looking to buy a residential property needs to be aware that there is a 3% Stamp Duty surcharge that applies to residential use properties over £40,000. The 3% Stamp Duty on second homes is applied to the entire value of the property. The 3% Stamp Duty higher rate charge will be £1,500 if the UK residential property is worth £50,000.

The second type of SDLT is called non-residential use Stamp Duty Land Tax Rate.

Up to £150,000Zero
Over £150,000 to £250,0001%
Over £250,000 to £500,0003%
Over £500,0004%

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Types of Stamp Duty to consider

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Residential Use Stamp Duty

Residential properties, which are used for people to live in will attract a scaled SDLT charge over £125,000

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Non Residential Stamp Duty

Non-residential or commercial properties have a lower rate of SDLT. This applies to shops, restaurants, warehouses, offices etc

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3% SDLT higher rate

The 3% SDLT higher rate only applies to residential use properties. This rate does not apply to non-residential use properties (commercial properties).

0% SDLT Acquisition by a house-building company from individual acquiring new dwelling

Property developers that carry out property exchange will not need to pay SDLT.  Stamp Duty for developers can be avoided. 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 an old-for-new basis. Technically this allows property developers to swap houses without paying stamp duty.

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 must

– 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 and the value of the old dwelling. The value of the old dwelling includes the building and land combined.

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0% SDLT Acquisition by property trader from an individual where the chain of transactions breaks down

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.

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 continue to buy it, then there is no SDLT charge. This is 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

In addition, the individual must

– 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

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0% SDLT Acquisition by property trader from personal representatives

The legislation covers a scenario where a property developer purchases a dwelling from personal representatives. 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.

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Buy a property limited company, not individual properties rates

SDLT is charged on land and property. Buying shares in a company attract a different level of tax with Stamp Duty (SD) at 0.5%, which is considerably less than if you purchased several properties from an individual as you would have had to pay the normal scaled level of SDLT, plus the 3% surcharge.

So if you are looking to buy properties ensure that you buy the company that holds the properties to take advantage of the different stamp duty levels.

Once you have identified a company to purchase then you will need to buy the company in your own name or have it as part of your group of companies. You will need to complete a stock transfer form to ensure that the ownership changes hands.

And, of course, having properties in a limited company has the added advantage that you can offset all of your mortgage interest costs against your property income, which as a higher rate taxpayer you will soon not be able to do.

John is looking to buy a property investment for £250,000. He is speaking with one landlord about buying the property that is held in a limited company. He is also offered to buy the limited company instead.

If he were to buy the property from the company then the SDLT charges would apply

£250,000 purchase price

£2,500 SDLT banded rates from the above table. The first £125,000 is not subject to SDLT. The second £125,000 is taxed at 1%

£7,500 3% SDLT surcharge tax rate

£10,000 total SDLT for buying a property investment with a value of £250,000

If John were to buy the company he would save a significant amount of SDLT.

£250,000 market value of the property

£150,000 mortgage on the buy to let investment property within the company

£100,000 net asset value of the company

The Stamp Duty (SD) rate is 0.5% of the £100,000. The SD rate is £500.

John would save an incredible £9,500

It was suggested that properties valued over £500,000 would be subject to Annual Tax on Enveloped Dwellings (ATED) when you buy a residential property into a limited company. This does not apply provided that the property is rented out. You will need to complete a form Annual Tax on Enveloped Dwellings (ATED): Relief Declaration Return to let HMRC know that the property is rented and that ATED should not be applied.

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