If you are a property developer the way your deals are structured will make a big difference to the tax liabilities, access to finance and cash flow for each project.
James Greenhalgh, Tax Director in our Property and Construction team gives his top five tips.
Have the correct structure
Seek early advice as to the correct vehicle to trade through. The decision between personal ownership, via an existing limited company or Special Purpose Vehicle (“SPV”) prior to purchase as the choice of vehicle can often have very different tax outcomes. Undertaking a development personally with a deferred sale structure could result in 45% income tax on your profits. The deferred sale structure could then mean the tax liability falling due before the sale proceeds are received with the consequent negative cash flow implications.
Claim Reliefs
There are a multitude of reliefs available to developers ranging from reduced rates of VAT on conversions from commercial property to 150% relief on remediating contaminated or derelict land. The availability of reliefs can be dependent on the structure used to undertake the development so again take advice before putting a spade into the ground!
Re-investing Profits
Where possible, consider how you are going to utilise the profits on each project before deciding on the overall structure. The choice of vehicle to undertake the development may be impacted by this. Often a corporate group structure can enable development profits to be tax efficiently utilised to recycle profits into new ventures whilst still ring fencing commercial risk.
Change of Intention
Should you decide to retain a development for rental purposes rather than sell on, this can crystallise tax on any uplift in market value over the acquisition and construction costs incurred up to that point in time. It is vital to document any change of intention at an early stage and the commercial reasons for the change as this can be utilised in defending against an argument from HMRC that there is a significant uplift in the value.
Financing the Development
Be sure to retain records of all finance used to undertake the development – this is especially true for any personal loans introduced into the business as there may be tax relief available for interest and fees associated with these.
Disclaimer
The information was correct at time of publishing but may now be out of date.
