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Stamp Duty Land Tax (SDLT) and VAT reduction for property investors and developers

January 13, 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 property developers are overpaying 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.

Let us look at the impact that the tax changes has 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.

Our team of property tax experts are on hand to best advise our clients on how to save property developers from overpaying SDLT in order to increase their profitability.

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Download our tax-efficient property investment guide for 2018 here

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Time for a change of strategy?

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, and 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.

No need to pay SDLT as a property developer

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. So, if you are buying a house from a seller why not incentivise them to buy a house from you in order to save SDLT.

You can read more about this in the above article.

Errors by conveyance solicitors

One set of people that people should put trust into are those from a legal back ground. 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 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 Stamp Duty Land Tax that is necessary and will have a significant negative impact on the profit made by a property developer.

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