Advice on tax vehicle for development plot

[JMW_tax]

Valued opinions on financially best way forward and pros and cons.

I have a BTL property with a developable plot adjacent both held on separate titles and both in my wife's and my name. I believe that planning would now be achieved on the plot and am wondering the financially best way forward. The plot is currently worth perhaps £20 - 30,000 without planning. £100 - 130,000 with planning and £250 - 280,000 built.

Is it worth setting up a property company and selling the plot to the property company. I assume with will just incur the 3% additional stamp duty. CGT would be payable, but this would only be £10 - 20,000 split between my wife and I.

What is the tax advantages of the property company and what is the cost of setting up and administering it (is it something I could do as a reasonably savvy person).

Is it worth moving other BTL properties into this property company in time... though the biggest issue is Stamp Duty in transfer and CGT - I think all the properties have more than £100,000 net gain... some over £250,000.

Lots to discuss I'm sure. Thank you in advance for help offered.

[AGoodman]

On the development, the big difference is that you pay corporation tax on the profits rather than (probably, but not necessarily) income tax. However, you have to pay more tax (either dividend rate income tax or CGT) to extract money from the company so there's only a benefit if you expect to keep the funds in the company long term. Bear in mind CT could rise from its current low by the time you build and sell the property.

It's possible (I think) you could get CGT treatment on a personal build and sale but not if you bought the land with a view to selling it on. CGT rates are also at a historical low and I reckon they are a good candidate to go up from 28% next year.

When it comes to the existing BTL, I'd suggest you get an accountant to run the numbers for you because it all depends on the circumstances - particularly if you have mortgages on them.

[SDLT Geek]

Whilst the company would pay SDLT on market value, I do not believe the 3% surcharge necessarily applies. That is because the plot is not a “dwelling”. The 3% surcharge only applies to an acquisition of a dwelling. The property would count as a dwelling is there is a building in the course of construction.

Garden land can be “residential property” without being a dwelling.

[bd6759]

For what it’s worth, I agree with the Geek. Whilst the residential rates might apply to the plot if it is considered to be gardens or grounds, if there is no actual dwelling the additional rate does not apply.

[JMW_tax]

On the development, the big difference is that you pay corporation tax on the profits rather than (probably, but not necessarily) income tax. However, you have to pay more tax (either dividend rate income tax or CGT) to extract money from the company so there's only a benefit if you expect to keep the funds in the company long term. Bear in mind CT could rise from its current low by the time you build and sell the property.

It's possible (I think) you could get CGT treatment on a personal build and sale but not if you bought the land with a view to selling it on. CGT rates are also at a historical low and I reckon they are a good candidate to go up from 28% next year.

When it comes to the existing BTL, I'd suggest you get an accountant to run the numbers for you because it all depends on the circumstances - particularly if you have mortgages on them.

Thank you for the info... Whenever I have looked at whether to incorporate, I could only see additional taxes rather than savings.. though it makes sense that if keeping it in the company, the taxation does not apply enabling you to grow the company and only paying (higher) taxes when drawing down. Though with the mortgage interest treatment, there is an advantage there I'm sure.

I will need to think carefully about whether I am keeping the funds in the company... I might do medium term (5 Years) and use them for additional developments / refurbishments...

I hadn't thought about which taxes will rise in the years to come, but I reckon you are right about both CT and CGT.... which may sway my end game plans... choosing to keep it and rent it out... perhaps.

Many thanks

ps. delay in responding as I didn't receive any notification of a response and I've been rather busy. I appreciate all advice I get here so much.

[JMW_tax]

Whilst the company would pay SDLT on market value, I do not believe the 3% surcharge necessarily applies. That is because the plot is not a “dwelling”. The 3% surcharge only applies to an acquisition of a dwelling. The property would count as a dwelling is there is a building in the course of construction.

Garden land can be “residential property” without being a dwelling.

The plot is currently the garden of a BTL I have. So I assume the 3% would apply... but if not, then as it is only low value land, then there would be no SDLT to pay, if I'm right.

Thanks. Just need to consider the CT aspect as above.

[JMW_tax]

For what it’s worth, I agree with the Geek. Whilst the residential rates might apply to the plot if it is considered to be gardens or grounds, if there is no actual dwelling the additional rate does not apply.

So if it was garden of existing property, but separated in title 5 years ago and has been just scrub land for probably 10 years or more, where would it sit? It does have the old driveway on it and it is still used for parking a car for the house.

I think the issue of the additional SDLT would sway the decision, as it is already quite a close decision.

[bd6759]

When we say residential rate, that means the residential rates of SDLT as opposed to the non-residential rates (which are lower)

The 3% rate is an addition to the residential rate, where a person acquired a second “dwelling” (or a company acquires any number of dwellings).

Whilst land attached to dwelling will usually attract the residential rate, it will not attract the additional 3% rate because the purchaser is not acquiring a dwelling. Although a garden is “residential”, it is not, by itself, a “dwelling”.

[JMW_tax]

When we say residential rate, that means the residential rates of SDLT as opposed to the non-residential rates (which are lower)

The 3% rate is an addition to the residential rate, where a person acquired a second “dwelling” (or a company acquires any number of dwellings).

Whilst land attached to dwelling will usually attract the residential rate, it will not attract the additional 3% rate because the purchaser is not acquiring a dwelling. Although a garden is “residential”, it is not, by itself, a “dwelling”.

Ahh... thank you for the clarity, I never realised that it does not apply to 'land', only dwellings (might be helpful for future purchase choices .... so moving (selling to own company) the land would incur no SDLT at this time (worth £10,000 ? at present). Now I'm clear.

[JMW_tax]

Apologies for slow response to these messages... but I seem to get no notifications at present