From the perspective of a property developer or investor, one of the major costs of acquisition of a property is the Stamp Duty Land Tax (SDLT) charge.
There are many areas where the input of an experienced tax advisor can make a huge difference to the SDLT cost of the transaction.
Stamp Duty Land Tax
The first point to note is that SDLT is charged based on the chargeable consideration for the transaction.
This is the VAT-inclusive cost of the transaction (when acquired from an unrelated party).
Consequently, the VAT treatment of the transaction can have a significant impact on the SDLT cost, irrespective of the ability to reclaim the VAT.
Such a property transaction can frequently involve more than one title and/or more than one transaction. This creates potential issues with what is termed ‘linked transactions.’
These are any transactions where there is more than one title being transferred in a single transaction, or in a series of transactions, which can include from parties connected to the seller or buyer.
For example, if you acquire a freehold in one company, then in a company you also control, you buy the leasehold from another company associated with the seller, then these transactions are regarded as being linked.
The consequence of this is that the SDLT is calculated based on the combined chargeable consideration for all transactions, which clearly has a significant impact upon the SDLT payable.
Multiple Dwellings Relief
In some circumstances, Multiple Dwellings Relief (MDR) acts to mitigate these issues, but there are several areas where care needs to be taken to ensure the best potential outcomes are achieved.
Additionally, where there is a significant commercial element, the site may potentially be treated as mixed-use, so the lower non-residential rates of SDLT become applicable.
Furthermore, this applies, unless MDR is available and claimed, where 6 or more residential units are acquired in one or more than one linked transaction. Therefore, there may be a decision to be made as to the preferred treatment and this can be worth tens of thousands of pounds in each property transaction, where good tax advice can be invaluable.
Another area where SDLT treatment is a major factor is when acquiring construction sites for the building of multiple residential properties.
By default, if there has been no work carried out on the site, the commercial rates will apply, but there is also a provision where the residential rates could apply on a sale off-plan of all units.
Depending on the number of units, this could be significantly cheaper for the buyer. However, this must be carefully structured and is dependent on the legal drafting on the contract. So detailed review of the contracts is essential here, and early advice at the stage of drafting the contracts can save a significant amount of SDLT.
Again, experienced tax advice with an understanding of the needs of property businesses can make a significant difference to the profitability and viability of property projects.
Contact us today for further information.