Tax Planning

SDLT and VAT reduction for property developers


Simon Misiewicz

13th January 2018

By Louise Misiewicz

Article relevant to the tax year 2017/18

Are you overpaying Stamp Duty Land Tax (SDLT) as a property developer?

I believe that there is an overpayment of property developers tax. In particular, SDLT because of two reasons.

  • One is caused by the wrong strategy and structure of the development
  • Mistakes made by their conveyance solicitors.

Due to recent tax changes, property investors and property developers are now subject to a 3% SDLT surcharge on residential properties if they buy a second property in their own name or if they buy a property in a Limited Company, which we discussed in a previous article, written by our property accountants.

Let us look at the impact that the tax changes have for a property investor/ property/developer:

£350,000 property purchase price

  • £7,500 usual SDLT charge
  • £10,500 3% SDLT surcharge
  • £18,000 total SDLT charge

As you can see from the above, the SDLT charge has now doubled since the tax changes. This is a clear indication in the increase of property developers tax liability.  Our property accountants can help reduce buy to let tax for property tax by changing how developers buy properties.

Time for a change of strategy to reduce property developers tax?

There are plenty of commercial properties that are currently empty. As such, it looks as though some city and town centres have tooth decay right in the middle. Most local authorities will not want this to continue. There are permitted development rights to alter the use of properties from commercial use into residential.

If you bought the same building at the value of £350,000 but as a commercial unit the SDLT charge would be just £7,000. This is a saving of £11,000 or put it another way, 61% SDLT saving.

Not only this, but you can also make significant savings on VAT on the refurbishment of commercial to residential conversions. If you are going to keep the property as a rental then you can reduce the refurbishment from 20% VAT charge to just 5%. This is a savings of 15% VAT and can contribute towards a tidy profit. You can read more in this article.

There is a possibility that you will not pay VAT on the direct labour and materials if you are looking to buy a commercial building and convert it into a residential building, and are prepared to sell it without renting it out. You can read more about this in my previous article here. It is worth booking some time with our property accountants to see how we can help you.

Download your buy to let tax guide here, written by our property accountants

I also wrote in another article here where property developers do not need to pay any SDLT if they jump in and save the day.

If someone is trying to sell their house and you rescue the sale as the buyer pulls out, then there is no need for the property developer to pay SDLT at all.

Property developers do not need to pay SDLT if a part exchange deal takes place. Why not incentivise the seller of a property to buy a house from you in order to save your SDLT.

You can read more about this in the above article.

Errors by conveyance solicitors on their calculations 

One set of people that people should put trust into are those from a legal background. Sadly, we should not trust solicitors in general. We have found too many costly mistakes where clients have been told to overpay SDLT.

We know that £7,000 SDLT should be charged from the above example where a property developer buys a commercial property at a cost of £350,000.

Sadly, I have seen many mistakes from conveyance solicitors that do not understand SDLT legislation and therefore overcharge Stamp Duty Land Tax to property developers.

Instead of charging £7,000 on a mixed-use property on the purchase price of £350,000 I have seen a solicitor charge the client £18,000 based on residential use.

This is a staggering £11,000 overpayment of SDLT that is necessary and will have a significant negative impact on the profit made by a property developer. This is caused by an excess payment of property developers tax.

How can our property accountants help you reduce your property developers tax?

Book a call to discuss our property accountancy services – Click Here to book

Book a tax call with our property tax specialists using the code “Art25” to get 25% discountClick Here to book

Book a call to see how we can help you.