property dev joint venture - pitfalls to avoid??

[johnfm]

May be going into a JV with another developer on a property that I own. Just completed on the purchase and have put in for more enhanced planning. Other developer has construction and projection management infrastructure. He will be cashflowing interest and the build - profit will be split in proportion to capital outlay - which looks to be about 55:45 in my favour.

ANy obvious pitfalls to avoid?

[Eric Mc]

Get a written agreement.

How do you intend to pay tax on the "profit" when the project is over?

[johnfm]

Hi Eric

I thought you'd be first to respond!

RE: tax on profit - not got that far yet. My other main concern is how to get the property into the limited company without paying stamp duty twice. Have meeting on Wednesday with my accountant and tomorrow with my solicitors, but thought I'd put it out to the PH brains trust.

[Eric Mc]

What type of profit - will it be a Trading Profit from a Property Development business or will it be a Capital Gain on a one-off investment?

You didn't originally mention a limited company at all and that really does make the whole picture a lot more complicated.

You say you already have an accountant so there are limits to what I can say to you.

[johnfm]

Hi Eric

It will be a trading profit. I already have 3 or developments in my sole name. These are trading profits/losses (as teh case may be!).

The JV will be a ltd company to ringfence the project and the inputs and profits for me and the JV partner.

[Eric Mc]

is the company already trading as a property development company?

[johnfm]

No - I expect it will be an 'off the shelf'.

[Eric Mc]

And its trade will be developing properties I assume?

[johnfm]

Yes - refurbishing, converting adn newbuild with intention to sell on.

[Eric Mc]

It sounds fairly straightforward to me then. The company is a normal trading company and will pay Corporation Tx on its normal trading profits - if and when it makes these profits. The tricky part is

i) how the ownership of the company is structured

ii) how money is extracted from the company by the participants (shareholders/directors/employees) in as tax efficient a manner as possible.

Edited by Eric Mc on Tuesday 15th January 10:22

[johnfm]

Cheers Eric. My main concern is how to get the ownership of the property transferred to the ltd co without incurring a second dose of stamp duty. I can't believe it is as simple as sending a new form to land registry.

[Eric Mc]

Not to mention Capital Gains Tax - especially with the impending abolition of Taper Relief on 5 April.

[johnfm]

Well, CGT isn't an issue - only just completed on the property and it has no apprecaible gain. It is the repeat dose of stamp I am concerned about. Still, I hope my solicitor can answer that if he ever calls me back!!

[Eric Mc]

Why are you keen to get it into a limited company?

[johnfm]

Not keen. Spoke with JV partner - it will be LLP. I expect LLP will take second charge over property.

JV agreement will need to define each partners input into teh partnership, proposed profit split and, more importantly, a long list of remedies for the inevitable 'what ifs'...