10 Oct 2018

Building instead of buying – beating SDLT

Those who buy below market value and improve properties to remortgage and recycle their cash are struggling to make the sums add up now that there’s a hefty 3% stamp duty land tax (SDLT) surcharge to pay. Have you considered the ways of saving on SDLT? Here, Philip Peters at Whiting & Partners explains more.

Many investors are now beginning to question whether or not it is still possible to make money from investing in single let properties with the possibility of buying land and building a property instead.

When purchasing an existing residential dwelling, you are liable for SDLT on the entire value of that property. HMRC regard this differently when considering vacant plots as these are liable for commercial rates of SDLT and, therefore, the 3% charge can be avoided.

Another way to save on costs that many investors often consider is splitting properties into new plots – those with large gardens, for example. This avoids any land purchase costs entirely, although there are some other considerations if this is your own residence in terms of income tax.

However, if you buy a plot that is part of a garden of an existing house, you’re likely to have to pay SDLT at the residential rate. If you purchase a £400,000 property, you’ll now have to pay £22,000 in SDLT if it’s a second property. But if, instead, you buy a vacant plot of land that’s deemed as commercial and build a property to create something worth £400,000, you could possibly avoid SDLT altogether. If, for example, you buy an empty plot that costs £140,000 and SDLT is charged at commercial rates, as the purchase prices falls under the lowest threshold for non-residential properties of £150,000, you won’t have to pay any SDLT. If the build then costs £200,000 and the end product is worth the desired £400,000, you’ll have created not only £60,000 in equity, but also saved £22,000 in SDLT compared with buying an existing property, so you’ll be £82,000 better off.

Of course, you should consider that these options are very different in terms of building a home in the garden of a house and a new dwelling on a plot of land. You may be looking to sell or rent the property after and, therefore, this should be considered when deciding on the best route.

You can see how much SDLT you will need to pay by speaking to your local accountant who can advise on what fees are relevant to you.

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