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bigduckontax, Accountant
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Keith A property with 3 shareholders, an ex working mans club with planning permission

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Hi Keith
A property with 3 shareholders, an ex working mans club with planning permission for 4 x 2 bedroom apartments is to be developed, either through a company or as a sole trader. The property was purchased for £200k and now valued at approximately £450k, estimated development costs £250k. Which is the most tax efficient way to develope bearing in mind that a company can save 20% vat on the development costs. We seek advise on the best way forward.
Thank you
P. Molloy
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Is this company already registered for VAT?
Customer: replied 1 year ago.
Yes
Expert:  bigduckontax replied 1 year ago.
Phew, thank goodness for that. For the redevelopment all the input taxes can be reclaimed, in theory, but it may not be so easy in practice. Presumably the apartments are to be sold off on completion or are they to be rented out; please advise?
Customer: replied 1 year ago.
Yes they will be sold off plan
Expert:  bigduckontax replied 1 year ago.
Now you have a problem. Such transactions are exempt from VAT, although you can opt to tax, but that may be un-competitive as buyers may jib at an extra 20% unless they to are registered for the tax. VAT can only be reclaimed in proportion to standard, reduced or zero rated supplies made, exempt supplies do not count so the reclaim of VAT on the redevelopment cost may be limited. I am so sorry to have to rain on your parade. You will have to be careful that the company's selling price covers the additional cost to you of non reclaimable input tax.
Customer: replied 1 year ago.
So what in your opinion is the best way forward
Expert:  bigduckontax replied 1 year ago.
Redevelop and make sure that your sales prices recover the VAT you will have had to pay so the company is not out of pocket. Companies are not subject to Capital Gains Tax (CGT), all gains or losses are passed through a company's trading account and are subject to 20% Corporation Tax (CT). If you are selling to an organisation registered for CGT then opt to tax that apartment so a proprtional chunk of input tax can be reclaimed.
Customer: replied 1 year ago.
What are the tax implications if we do it as sole traders
Expert:  bigduckontax replied 1 year ago.
You will be liable for CGT on the whole gain at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale.
Customer: replied 1 year ago.
Are there any reliefs we are entitled to for example entrepreneurs relief?
Expert:  bigduckontax replied 1 year ago.
Entrepreneurs Relief might apply, this limits CGT to a flat rate of 10%, however it requires the disposal of a business which is not the case here. Furthermore, HMRC may treat the whole actiivity as trading in land and thus subject to Income Tax (IT) rather than CGT. I suspect that they may well adopt this approach here.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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