Dear Accounting Web,
I have recently obtained planning permission to demolish a property I own and replace it with two new dwellings on the same site.
The situation is:
[1] The property is currently my primary residence and I have solely been living there for circa 2 years.
[2] The property is owned privately in my name.
[3] I aim to finance the build via personal savings and from the retained profit of a limited company that I'm the sole director of - This will be done via a directors loan (I understand the tax implications of this) or by taking a suitably sized dividend.
[4] Once the two new dwellings are complete I plan to sell both of them.
I understand if this were a "self-build" that I planned to reside in I would be able to reclaim the VAT paid on building materials via the following scheme: http://www.hmrc.gov.uk/vat/sectors/consumers/new-home.htm. As I will not be living in either dwelling once they're complete I would like to understand if it's possible to reclaim VAT on materials and if so how I go about doing so?
I also understand I should only need to pay CGT on the profit from one dwelling as the other will count as the sale of my primary residence?
Can anyone help on these questions or recommend someone to consult regarding them?
Thank you for your time.
Rob
Replies (6)
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VAT angle
From a VAT point of view, you can register for VAT, and claim the VAT through your Returns. You could apply for monthly VAT Returns, to aid cash flow.
But, as mentioned above, you should use a good local Accountant to help you through the process.
You could PM one of the specialists on AccWeb, as a good starting point.
Very broadly speaking ...
.. the best structure is probably to sell your home to a limited company formed to do the development. That's tax free, but there may be a hit of (unavoidable) stamp duty (SDLT to be correct) on the way. It's worth it.
The company then does the development, pays corporation tax @ 20% on the profit, and you then wind it up with the benefit of entrepreneurs relief. Total effective rate of tax on the profit over current value = 28%.
Your other company can lend the development company the funding cash without the problems / tax liabilities associated with directors loans or dividends.
VAT not an issue - as another poster says just reclaim on monthly returns.
But do get some good quality local accountants advice.