Reviewing the Tax Implications of your Building Project

30 May 2024

You’ve found an ideal building/site to buy, you have a plan in mind for your project and the end goal.

But have you thought about the tax implications and if there are potential savings?

What happens if things don’t go to plan and you need alter your end goals?

Why is it important?

Cash is King.

On a building project where a lot of money is borrowed and budgets can be tight.

The last thing you want to do is pay out cash on taxes that could be easily avoided.

There have been cases where these tax bills have halted projects altogether and huge losses can be made, you don’t want to loose sleep or be pulling your hair out worrying about this.

You should feel fully focussed on the project at hand, knowing that your tax affairs are safe and you are aware every step of the way.

In Practice

We have recently assisted a client who was looking to buy a pub.

The plan was to renovate the pub and rent it out, and then convert the upstairs into flats to rent.

As there would be rent involved, there would be partial exemption issues and therefore not all VAT would be recoverable.

Upon speaking to the client we were able to go through the different options and settled on a way that would save the client £35k in VAT!

What to consider

There are 4 key areas of tax that we need to consider with any building project:

VAT

VAT can be both a blessing and a curse.

There are opportunities to make huge savings from being VAT registered.

However in the same breath, there is potential that you can have liabilities further down the road that could have been avoided.

Do I need to worry about the domestic reverse charge?

Am I the end user or am I part of a chain?

Getting this wrong could result in additional VAT needing to be repaid and potential penalties upon inspection.

Should I be opting to tax?

It is a question that gets asked a lot and would be something we would review, along with also considering if we can disapply the option to tax on the purchase.

By knowing the overall goal, we would be able to plan ahead to give rise to the lowest VAT bill we can on finalisation whilst also maximising our VAT reclaims as we go.

Stamp Duty

Are you entering a joint venture with the owner and looking to move the property into a new company owned by both of you?

The new company will potentially have to pay SDLT on the purchase.

Building properties in one company and selling them to another of your companies to rent out ongoing?

Again there could be SDLT to pay.

This is an area that we would be looking to review as it can be a costly sum (lets not forget you pay this on the VAT inclusive amount!) and if there are ways to reduce SDLT, it can result in large savings!

Corporation/Capital Gains Tax

Ultimately the plan is to make a profit on your projects and therefore tax will be inevitable.

However, we would still want to lower this by as much as possible!

A poor set up can lead to multiple taxable events along the way on your construction project, which can get even worse if the project goes south and we haven’t got the business structure in place to seamlessly switch from Plan A to Plan B.

CIS

Have you thought about CIS?

As you will be carrying out major development works and potentially hiring subcontractors to do some of the building works, you will likely need to register for CIS and deduct this from your workers to pay the tax over to HMRC.

It is another tax that can come with fines if you get it wrong, so it is best to be compliant from the start and avoid any future headaches!

I want to make sure I am minimising my taxes, what next?

Take a look at our property review checklist, if you are answering yes to any of these, give us a call to see if there are any possible savings.

Our property reviews are carried out by our team of specialists Darren Hughes (Property expert), Christie Inns (Tax specialist)

They all work together to cover every angle and make sure that no stone is left unturned when looking for opportunities to save tax.

We would be looking at each step of the process to make sure there aren’t any own goals being scored leading to needless amounts of tax being paid to the Revenue.

We review the business structure and the overall plan to make sure that we are as efficient as possible with our tax bills whilst also being able to pivot to Plan B and keeping tax bills as low as possible.

Every case is different and what works for one, may not work for the next and this is why we are always keen to work closely with our clients to find the best solutions and support them throughout their journeys.

Getting in touch

Here at Friend and Grant we want to be able to put your mind at ease from the start and present a detailed report that looks at the current position, areas where we believe tax can be saved, and review the back up options so that we know the implications in a worst case scenario and where possible, what we can do to avoid paying unnecessary taxes.

Whether you’re seeking guidance or making critical decisions about your property investments, we’re here to help.

If you have any questions or require assistance with points discussed in this blog, please complete a contact form or give us a call on 01634 731390.