Developers buying houses- watch out for the SDLT
As buses often come in threes, so do the questions surrounding stamp duty land tax, or SDLT, I am asked. I have encountered a few issues recently, where a development company has bought a site, including a house, potentially getting caught up in the penal higher rate provisions, designed to stop individuals from holding their home in a corporate wrapper. The 15% rate of stamp duty land tax has been an issue in these cases, as part of the price one would apportion to the house, is over £500,000.
Although the legislation introducing the higher rate of SDLT was intended to catch those acquiring properties through companies for personal, or family occupation, there are some anomalies in the working of the relief's from the 15% rate. There is a relief where a company buys a house for development and resale in the course of a property development trade. There are conditions however, and there can be a withdrawal of the relief (often meaning a further 11% SDLT to pay) if things change at any time, within three years after the purchase.
Examples of circumstances which can give rise to problems are the following:
- occupation of the house by a connected person, such as a substantial shareholder or members of the family
- an opportunity coming up for an interim use of the house, such as when one of our clients was approached for the site to be used for a film set while they progressed the planning
- a property being let, either before development starts or after it is completed
- the house being sold, as it stands, when an unexpectedly good offer comes in
- the house being used to accommodate the developer's employees or as an office while work is done on other land the company is developing
- the garden of the house being used as a site compound for the work done on other land the company is developing
- the house is bought to be demolished and the site to be transferred to the local authority pursuant to planning obligations
It is best to be forewarned, as some of the traps can be avoided, with a little planning.