SDLT and property development

[blueg33]

My tax solicitor has just firmed up his advice following the SDLT changes at the budget. I thought I would share his summary of the impact on a singe development

solicitor said:

1.1 MDR under new rules (rates increased by 3%)
(a) Divide total consideration by number of dwellings: £3,000,000/15 = £200,000
(b) Calculate SDLT that would be payable on the answer to (a). above: (£125,000 x 3%) + (£75,000 x 5%) = £7,500
(c) Multiply the answer to (b) above by number of dwellings: £7,500 x 15 = £112,500;
(d) SDLT is the higher of the answer to (c) above and 1% of the total consideration: £112,500 (i.e. as higher than £30,000).
1.2 In this example the new rules potentially increase the SDLT from £30,000 to £112,500.

So we complete 20 of these developments pa, giving my business an additional SDLT hit of £1.6m or a profit hit of 19%. I have no way of passing this onto the customer as this business develops homes for low income vulnerable disabled people and there is a maximum rent that will be paid.

So the upshot is that we stop building homes for disabled people. Not ideal IMO

[Petrus1983]

I can't see this being the case - we'd have heard the big developers kicking off by now. I could well be wrong though. A quick Google reveals -

"Where the acquisition of a chargeable interest is exclusively for the purpose of development or re-development and resale in the course of a property development trade, the 15 per cent higher rate charge will not apply to the transaction. Instead, SDLT will be charged at the standard rates."

https://www.gov.uk/hmrc-internal-manuals/stamp-dut...

[blueg33]

Petrus1983 said:

I can't see this being the case - we'd have heard the big developers kicking off by now. I could well be wrong though. A quick Google reveals -

"Where the acquisition of a chargeable interest is exclusively for the purpose of development or re-development and resale in the course of a property development trade, the 15 per cent higher rate charge will not apply to the transaction. Instead, SDLT will be charged at the standard rates."

https://www.gov.uk/hmrc-internal-manuals/stamp-dut...

House builder model is different. We sell completed developments to pension funds.

Our advice comes from two leading property tax lawyers.

[Oi_Oi_Savaloy]

Could you not place the completed units into an SPV and then sell the shares of the SPV to the pension fund? 0.5% on that basis?

Or rent them out prior to the onward sale and make the transaction a TOGC?


Just trying to think laterally - please don't shoot me down!

[blueg33]

Oi_Oi_Savaloy said:

Could you not place the completed units into an SPV and then sell the shares of the SPV to the pension fund? 0.5% on that basis?

Or rent them out prior to the onward sale and make the transaction a TOGC?


Just trying to think laterally - please don't shoot me down!

Nice ideas but neither work. First will still attract SDLT and it's pretty much how we do it anyway. I can't recall why we dismissed the second idea a couple of years ago. Will speak with lawyer

[Oi_Oi_Savaloy]

Also - it's a pity you can't sell the pension fund some or all of the commercial element of the scheme too. I think I'm right in saying that 3% stamp doesn't apply to mixed-use purchases.

[blueg33]

Oi_Oi_Savaloy said:

Also - it's a pity you can't sell the pension fund some or all of the commercial element of the scheme too. I think I'm right in saying that 3% stamp doesn't apply to mixed-use purchases.

No commercial element. We can choose between commercial and residential rates but the difference is minimal as the tiers apply to commercial too.

[Jobbo]

Oi_Oi_Savaloy said:

Or rent them out prior to the onward sale and make the transaction a TOGC?

A TOGC might have an effect on VAT (though these are new-build resi, I think, so not relevant since no VAT anyway), but has no effect on SDLT.

[blueg33]

Jobbo said:

Oi_Oi_Savaloy said:

Or rent them out prior to the onward sale and make the transaction a TOGC?

A TOGC might have an effect on VAT (though these are new-build resi, I think, so not relevant since no VAT anyway), but has no effect on SDLT.

Funds dont like buying trading businesses. All sorts of potential liabilities and heaps more DD

[Jobbo]

The point I was making was that it wasn't even relevant to SDLT, so it's not a scheme which could be offered anyway.