How the stamp duty holiday helps homebuyers and landlords

In July 2020, as a result of the coronavirus pandemic, Rishi Sunak put measures into place to get the economy up and running again, and one of these measures was the stamp duty holiday in England and Northern Ireland.

The new threshold exempts buyers from paying stamp duty on homes worth less than £500,000. While second-home buyers would still have to pay 3% stamp duty, this applies to all residential properties. Originally, the scheme was due to run until March 31st 2021 but has since been extended to 30th June 2021. From that point until 30th September, there is to be a staggered return, with stamp duty being free on properties under £250,000. If you are a first-time homeowner, you will pay no stamp duty on homes under £300,000 and a reduced rate on homes between £300,000 - £500,000.

Unless you are a first-time buyer, you will have to pay stamp duty on residential properties costing more than £125,000 as of 1st October 2021.

As you can imagine, the stamp duty holiday has been welcomed by homebuyers who are now acting quickly on their house purchases to make the most of the saving.

How the stamp duty holiday helps homebuyers and landlords

Homeownership is critical to the UK economy, upward mobility, and the ambitions of many people who are currently finding it difficult to purchase a house. Given recent events that have brought the economy to an almost grinding halt, it is essential that the UK economy gets moving again, so giving first-time buyers a leg up to get on the property ladder is one way to kick start it.

However, it is not the first time a stamp duty holiday has been implemented. A stamp duty holiday helped double the number of home sales during the 1992 recession. A 12-month stamp duty holiday was also one of the steps put in place to help the property sector recover during the 2008 financial crisis.

Zoopla, the property portal, has found that around 750,000 buyers will have benefitted from the stamp duty holiday by the time it ends.

It has especially benefitted those buying properties in the North East, where two-thirds of properties currently for sale fall under the £250,000 threshold. Buyers in these areas will therefore have plenty of opportunities to buy a property without having to pay any stamp duty whatsoever before the end of September.

The stamp duty holiday also means that not only are buyers saving a significant amount of money for the time being, but that house sales are going through quicker than ever.

Buyers are obviously keen to compete before the end of the scheme, and sellers are aware that the property market is likely to see a drop in demand when the stamp duty holiday scheme comes to a close, so are eagerly pushing sales through and accepting offers more readily to get it done.

The stamp duty holiday makes no distinction between those buying their first home or those who are well up the ladder, making it great news for anyone looking to buy a house under £500,000 at the moment.

The stamp duty holiday also means that those looking to buy their starter home will benefit from more of them being available.

The stamp duty holiday also benefits landlords and property investors

Anyone buying a second home, whether as a buy to let or an investment or holiday home still has to pay a 3% stamp duty surcharge, but they still make savings thanks to the stamp duty holiday. The lower threshold will have bought those thinking about dabbling in the investor market to go ahead and make the purchases while they can make savings.

Final thoughts

All in all, the stamp duty holiday has helped homebuyers, whether they're taking their first step towards homeownership or they're well and truly up the ladder, while also benefitting landlords and potential property investors. It has also given the UK economy a boost at a time when it is very much needed, which is a win all around!

Here at NFC Homes, we are always looking to buy land for development. If you're looking to sell land and want to know more, please get in touch with us for a free, no-obligation quote.

Selling land: What are the tax implications?

For most individuals looking to sell small plots of residential land in the UK, tax is usually not an issue. Any uplift earned from selling land of this type will typically not see any deductions due to taxation. For larger plots of land, this situation may change, meaning you may have to account for taxation when that land is sold. This can apply even when the entire process takes several years to complete. Consequently, knowing the type of taxes you may have to pay is an important step if you're in possession of a larger plot of land you're looking to sell.

When do I need to pay tax for selling land?

As mentioned above, it's important to point out that there is usually no tax that needs to be paid for any sales involving land smaller than 0.5 hectares. If you're looking to sell smaller plots of land - such as your main residence or part of your garden - any uplift earned once a sale has been completed should be tax-free.

If the plot of land you're looking to sell is considerably larger (such as a farmer's field or an industrial site), taxation will be a factor worth considering, the details of which can be found below.

Capital gains tax

Once your sale is complete, you may have to pay some deductions. These deductions will be part of your capital gains tax. If you inherited the land, you might have to pay the probate cost as well. On the other hand, you will also have to budget for incidental selling costs and acquisition costs.

Capital gains tax applies when your land sale is more than your yearly exemption. Currently, the capital gains tax for such individuals is £11,300 (2021). For residential property, any increase above the maximum exemption will be charged an extra 28% tax deduction.

The capital gains tax was revised by the Finance Act of 2016. The Act states that taxes can't be more than 28% of the land sale proceeds. The legislation also clarified disposable land and residential property. Therefore, if your land can be converted from commercial to residential, you could be protected from certain taxes.

Income tax

Some land sales attract income tax, though most people prefer capital gains tax because it's lower.

Many developers build structures to pay capital gains instead of income tax. When this practice became rampant, the government created new anti-avoidance regulations in 2016. The aim was to make sure that companies pay income tax when they sell land for profit. Nevertheless, this is still a grey area since classifying a particular land trade is difficult. The tax authorities will evaluate the seller's intention before asking for capital gains tax or income tax.

First, they will try to determine whether you are trying to make a profit from your sale. If you have been doing similar transactions in the recent past, then a profit motive may be detected. In this case, you may be asked to pay income tax.

Another consideration will be the type of financial arrangement. Short-term financing and ownership are indicators of a profit motive. Consequently, if you are selling land that you bought within the last year, you may have to pay income tax instead of capital gains tax.

Finally, the tax regulator will scrutinise the sale contract. For instance, profit-sharing shows a profit motive. If you will own a part of the subsequent real estate development, you can't claim capital gains taxes. Remember, it's always best to seek out professional advice on tax before making any decisions.

Detailed information

After you have sold your land, your tax adviser will ask for several documents. They will use these documents when filing your tax returns. Some of the main things that they will request include:

Acquisition details

A transfer deed usually accompanies any land transaction. Your tax adviser will request this document to determine your probate value. The probate value comes into play when selling inherited land. They may also require copies of the will and land deeds.

If the land was a gift from a benefactor, you would have to provide details of the gift. The reliefs received during the date of the gift can be claimed as tax deductions. Similarly, the land value of any gift received before April 1982 will be lower. This is because the valuation will not be adjusted for inflation.

Improvements and additions

You may decide to do some things to increase the value of your land. Such improvements and additions reduce your tax rates because you can claim them as deductions. Nevertheless, you must prove that the extra cost went to the enhancement of the land. For example, if you spend money on creating better drainage on the land, you should provide the corresponding documentation to your tax adviser.

Professional deductions

Many people may be involved in the sale of the land. For example, agents and attorneys, who will levy some fees. HMRC may give you deductions if you can prove that they were incurred during the disposal of the property. Consequently, your agent should give you an invoice that indicates the land registration details, which can support your deduction claims.

Evidence of intentions

As indicated above, the boundary between capital gains and income tax is not clear. Several factors come into play when determining the type of investment. In many instances, the final judgment will be based on the documents that you provide to HMRC. If you want to pay capital gains tax, you should stay away from documents that show a profit motive.

Final words

Selling land is a straightforward process when you work with the right people. Although you can hire a tax adviser to guide you through the process, you should know the tax implications of land transactions. This is the best way to avoid surprises and unnecessary tax expenditures. If you are looking to sell land for development, we'd be interested in hearing from you. We can not only purchase your land, but we have an experienced planning and construction team to manage the whole process from start to finish. Get in touch for a free review of your land. NFC Homes and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

How to convert commercial property into residential

There were once many restrictions on the process of converting a commercial property into residential premises. Fortunately, the situation changed in the middle of the last decade.

Today, converting a commercial property into a residential development is a simple process. As a result, increasing numbers of developers are purchasing and altering commercial properties for residential means, thanks in part to their larger floor space which means they can even be used for multi-occupancy homes. That being said, the process can still be a long, tedious and expensive one if you don't know what you're doing.

Read on to find out how to convert a commercial property into residential.

What to consider when converting commercial property into residential

Before you can begin the process of converting your commercial property into residential property, there are several things that you must bear in mind. This includes:

Check the building's classification

UK building regulations categorise every building in the country in a specific use class. Class A encompasses buildings that provide commercial services.

Class B usually includes warehouses and commercial offices. Residential buildings are considered part of Class C.

The final class is Class D, which includes miscellaneous buildings such as cinemas and leisure buildings.

Consequently, you must know the classification of your intended building. Each class has its own conversion rules which may present some challenges. For instance, commercial properties have flexible conversion rules for developers, but the situation is not the same with buyers.

The cost of conversion

There will be specific costs incurred during the conversion process. Even when you're not starting the process from scratch, you will end up spending a lot of money if you don't understand the process well.

This might be the case for buildings that need extensive repairs and structural changes. The entire cost may eat into your profits.

Understand planning permission rules

Obtaining planning permission is not a standard requirement, but you should be prepared for it so ensure you enquire with the local authority whether you need any consent before beginning the conversion.

Permission may be compulsory for projects that involve knocking down walls. Consequently, any costs associated with obtaining permission should be included in your budgeting process. For more information on planning permission, you can view our recent article on the subject here.

The conversion process

The conversion process is determined by the GPDO directive of 2015. This directive removed some obstacles to give residential developers more flexibility.

Here are some of the steps involved:

Create a budget

Before you start looking for commercial buildings to convert, you will need to work out your budget. Knowing how much money you are willing to spend can save you a lot of trouble along the way.

You will save a lot on the conversion project if you can determine unexpected costs before the project starts. It is generally recommended that you should budget for more than is required. The total cost encompasses building purchase, land valuation costs, and permission approval expenses.

Find the ideal property

It's now time to look for the right property. Commercial properties in a particular location or with specific structural or architectural features may be high on your list and could potentially add greater character to the residence in future, which could increase its resale value. In the short term, they may also provide good rental returns. Arrange to speak to a professional real estate expert who can help you find the right property to convert.

Check the building's classification

Once you have found a property, you will need to confirm the building's class type (as described above) before you can begin with the conversion as some restrictions may apply.

Confirm any exceptions

While most commercial buildings can be converted into residential areas, there are some exceptions. Buildings within national parks and designated government structures cannot be converted to residential properties.

The same applies to any building that the government deems to be a security hazard. For example, if a building was initially used for military experiments, it cannot be converted into a residential area.

Therefore, you should check if there are any exceptions for the building you want to convert into a residential property. At the same time, you should keep an eye on the required standards.

Some design plans may prohibit specific structural changes. This prohibition technically stops any conversion process.

Seek the necessary permission

As mentioned above, you may not need planning approval for some conversions, but the local council must approve your upcoming projects. If the building is used as a bank, showroom, shop, or retail warehouse, you will need permission from the local council.

Buildings that cover more than one hundred and fifty square metres have extreme conversion regulations. You may also need conversion permission if you want to change the doorways or stairways.

Get funding

There is a range of financing options that you can use to fund your conversion project. You may be eligible for a bank loan or a mortgage from a building society to help convert a commercial building into a residential one.

Conclusion

Converting a commercial property into residential property is a smart move. If the commercial property is not functional or profitable in its current state, then it may be better utilised as a place of residence. However, you must understand the conversion process and pay due diligence if you want to do it correctly and save time and money. If you own a commercial property and are looking to either convert it or sell it on, contact us today for a free no-obligation quote.