5 top tax tips for property developers

If you are a property developer the way your deals are structured will make a big difference to the tax liabilities, access to finance and cash flow for each project.

Have the correct structure

Seek early advice so you understand what the best operating vehicle is for your venture. There can be very different tax outcomes depending on whether you choose to go down the route of personal ownership, utilising an existing limited company or creating a Special Purpose Vehicle (“SPV”). Undertaking a development personally with a deferred sale structure could result in 45% income tax on your profits. The deferred sale structure could mean that the tax liability is due before the sale proceeds are received with potentially very damaging cash flow implications.

Claim Reliefs

There are a multitude of reliefs available to developers, ranging from reduced rates of VAT on conversions from commercial property to 150% relief on remediating contaminated or derelict land. The availability of reliefs can be dependent on the trading vehicle used to undertake the development so again take advice as early as possible, before putting a spade into the ground!

Re-investing Profits

Where possible, consider how you are going to utilise the profits on each project before deciding on the overall structure as it might have an impact on the best business structure for the project.  Often a corporate group structure can enable development profits to be utilised more tax-efficiently by recycling profits into new ventures whilst still ring-fencing commercial risk.

Change of Intention

Should you decide to retain a development for rental purposes rather than sell on, this can crystallise tax on any uplift in market value over the acquisition and construction costs incurred up to that point in time.

It is important to document any change of intention at an early stage and the commercial reasons for the change. This can be used in defence against any challenge from HMRC that there is a significant uplift in the value.

Financing the Development

Be sure to retain records of all finance used to undertake the development – this is especially important for any personal loans introduced into the business as there may be tax relief available on interest and the fees associated with these.

For advice on minimising your tax liability ahead of a development project contact james.greenhalgh@cowgills.co.uk