HomeInsightsNewsProperty developers – 10 things to watch out for!


News // 11/05/2016

Property developers – 10 things to watch out for!

10 things for property developers

Here are 10 things Menzies Property and Construction sector team believe all property developers should be mindful of.

1 – Plan your structure

Planning is key – new rules make the use of SPV’s potentially less attractive going forward. This is due to the risk that the extraction of the profits on liquidation will be regarded as a dividend rather than capital on which entrepreneur’s relief may apply giving rise to a higher tax charge.

2 – Additional 3% stamp duty land tax charge

The 3% SDLT surcharge does not include any exemptions for property developers acquiring residential property. This must therefore be incorporated into costings for the development, unless you acquire non-residential or mixed use property as part as the same transaction.

3 – Land remediation relief

A little known tax relief that enables developers to include a 50% enhanced deduction for certain costs incurred in cleaning up the land or property including, for example, removal and disposal of Japanese knotweed, asbestos and other toxic substances.

4 – Construction Industry Scheme (CIS)

As a property developer you may be liable to register as a contractor under the CIS. The obligations include having to verify payments being made to people you hire to undertake work for you, such as plumbers, builders and carpenters as sub-contractors, and to deduct tax from payments you make to them where HMRC require you to do so.

5 – Annual Tax on Enveloped Dwellings (ATED) rules

If you trade through a corporate and have acquired or are building a residential property that is worth £500,000 or more, you will need to consider the ATED rules. This is the case even if the property is being held as trading stock for sale. However, substantial penalties for failure to comply can arise.

6 – Check the VAT treatment of your development

The VAT rules for property transactions are highly complex and getting it wrong can result in significant VAT and penalty costs. If intentions change during the course of the development (e.g. deciding to grant short rather than long leases), the VAT position should be reviewed.

7 – Beware of exempt supplies

Many property transactions are VAT exempt. Whilst no VAT is chargeable, it is also likely to restrict the amount of VAT reclaimable on costs under the ‘partial exemption’ rules. This could include a restriction having to be made to VAT reclaimed in the past 10 years.

8 – Make use of the VAT reliefs available

There are extensive VAT reliefs available for residential construction, conversion, renovation and alteration works. If the zero rate or 5% reduced rate can apply to the construction works, this could give a significant VAT saving or cash flow savings. Incorrectly charged VAT is not reclaimable, so it is important that suppliers apply the correct rate.

9 – Take care when using overseas contractors

Overseas contractors will often be registered for UK VAT and charge UK VAT on their invoices. However, if the contractor does not have a permanent place of business (‘establishment’) in the UK, this may be incorrect. In this case it could result in an irrecoverable cost for the UK business.

10 – Recovery of VAT on certain costs is blocked

Residential developers making zero rated supplies (e.g. sale of new dwellings) can generally reclaim the VAT incurred on development costs. However, VAT on certain costs (e.g. white goods, carpets and fitted furniture) incurred in connection with zero rated supplies is blocked. VAT claimed incorrectly can result in penalties and interest charges.

For further information on the above contact Menzies Property Sector Head, Ralph Mitchison. Email rmitchison@menzies.co.uk

Find out more about Menzies Property & Construction sector services.

Print Friendly, PDF & Email

  • Major VAT Changes for Construction Services

    The way in which VAT is charged on construction services will change in 2019, as a result of new anti-fraud rules. Around half of UK construction businesses are expected to be affected. Why are new rules needed? HMRC believe £100m of revenue is lost each year as a result of ‘missing-trader’ fraud, where construction businesses […]

    Print Friendly, PDF & Email

    IN THE HIGH COURT OF JUSTICE, NO 5618 of 2012 MR PETER JOSEPH MALLIA (formerly in Bankruptcy) Previously trading as a sole trader and solicitor under the name Mallia & Co Solicitors Trading address: 196 Cowbridge Road East, Cardiff, CF5 1GX Date of Bankruptcy: 22 July 2013 Notice is hereby given by John Dean Cullen […]

    Print Friendly, PDF & Email
  • Menzies advise on Paragon and Bond Davidson merger

    Menzies advise on the merger of building consultants, Paragon and Bond Davidson. The merged business will have combined revenues of around £22m and 200 staff across London, Esher, Manchester and Edinburgh, making it one of the UK’s largest independent building and project consultants, advising on projects with a total construction value of £5bn. “Menzies were […]

    Print Friendly, PDF & Email