Tax Insider Tip: How To Beat The Additional SDLT Charge

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How To Beat The Additional SDLT Charge

There are several measures that can potentially help, including buying before there is a dwelling.

The government has made it quite clear that it does not want to penalise land development and the 3% charge will not apply to bare land, mixed-use property, or similar.  
Property investors with the means and experience to undertake substantial development work will, therefore, be able to buy land or former commercial or mixed-use properties without incurring the additional SDLT charge – but with the implication that they will incur significant development costs. Nevertheless, the project may still prove worthwhile, depending on the circumstances: 

Example 5: Buying Before There Is A Dwelling
Prakesh, a landlord who already owns several residential properties, has the choice of buying:

 

  1. a plot with an old barn that would cost £600,000 to buy (before SDLT) and £350,000 to develop into four apartments; or
  2. an old Victorian house that would cost £750,000 to buy (before SDLT) and £200,000 to convert into apartments equivalent to option 1.
At first glance, the cost to end up with four rental apartments is the same. But Prakesh would have to pay a lot more SDLT to acquire the Victorian property than the old barn, which would not be exposed to the 3% additional residential property SDLT charge, even though he intends to develop it into a residential property. (In fact, the barn would rank as a commercial or non-residential property, so the SDLT charge would both avoid the 3% charge and ‘top out’ at the maximum 5% rate for commercial properties – see next). 

Note that, if Prakesh has to borrow money to finance the project then, as mentioned above, he will be caught by the new rules for interest relief restriction, assuming his intention is to add the properties to his letting portfolio, rather than sell them on.

Note, however, that ‘off-plan’ purchases, where: 

  • contracts have been exchanged for the purchase of a building, or part of building, which is to be constructed or adapted for use as a single dwelling by the vendor,
  • the contract is substantially performed, and 
  • at the time of substantial performance the construction or adaptation of the building has not yet begun 

will count as dwellings subject to the additional 3% charge, according to HMRC’s guidance at SDLTM09750.

The above is an excerpt from our best-selling property report: How to Beat the Landlord Tax Rises. For more information on how to cut your tax bill as a landlord, purchase the full report. 

Landlord Tax Rises h