I Am A Property Developer – Ask Me Anything!

I Am A Property Developer – Ask Me Anything!

8:48 AM, 1st November 2013, About 11 years ago 227

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I run a small property development business in the Reading, Wokingham and South Oxon and Bucks areas.

The company organises planning applications on small sites of up to 4 flats or houses, then secures the financing, oversees the design and specification, and commissions and project-manages sub-contractors to do the actual construction. I also undertake whole-house property renovations and act as landlord when I rent out existing detached houses on sites where I am assembling additional land or sorting out access and planning issues. 

My tenancies are usually graduate houseshares/HMOs as I find these give a more reliable income stream than renting to a family.  I Am A Property Developer - Ask Me Anything

I moved into property development from being a BTL landlord as I felt the returns would be better – perhaps not the wisest of careers moves in 2007!

I am inviting Property118 contributors to “ask me anything” as regards small-scale property development if they are considering this as an additional aspect or future evolution of their rental business.

I don’t claim to be able to answer everything as property development is a very wide-ranging field and can be highly specific as regards local valuations and planning rules, but I will endeavour to help.


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Comments

Matchmade

16:52 PM, 28th November 2014, About 9 years ago

Hello Peter, Thanks for your kind remarks. I think you've made the right decision: convert the loft if you really need the extra space and can really afford the money, otherwise just leave it as a little present to yourself, an idea for the future. The maisonette sounds big enough for most tenants already, unless you are running it as an HMO, so leave well alone.

To answer your question: planning permission is temporary, and generally expires after 3 years, after which you have to apply again, when the regulations may have changed and all your drawings will need re-doing. So if you go to the trouble of getting planning, you might as well use it.

Having planning permission won't make a blind bit of difference to the value of the maisonette from a surveyor's perspective: the extension needs to have been built and be visible. Planning permission will only make a small difference if you try to sell the property, and a buyer is attracted by the prospect of converting the loft.

Peter Johnson

18:09 PM, 28th November 2014, About 9 years ago

Reply to the comment left by "Tony Atkins" at "28/11/2014 - 16:52":

Once again thanks so much Tony, you have just saved me a bundle of trouble and costs. I will be renting the property very quickly now and the money which I was going to use on the loft conversion I will put on another property as you mentioned. Great advice from you. Wishing you much success for the future.

Mark Alexander - Founder of Property118

8:54 AM, 11th December 2014, About 9 years ago

New article which will be of interest to contributors and followers of this thread.

See link below 😀
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Mic Singh

13:46 PM, 19th January 2015, About 9 years ago

Hi Tony, I wanted to query one of your comments from a thread in 2012!

In regards to the CIS scheme, I am employing a building contractor via a ltd company on a design & build JCT contract who will supply all materials. It will be around £800k to demolish a house and build some flats. We mainly buy and rent property out and intend to keep the flats for the same purpose.

After reading this link from HMRC (http://www.hmrc.gov.uk/manuals/cisrmanual/cisr12080.htm) I would have thought I would have to register for CIS. But you say below that only applies if its a labour-only basis. Are you able to confirm even after reading the above you still hold the same view? And if so are you aware if there is any literature online to support it in case my accountant asks me for it?

Your quote from 2012:
"I’m a small-scale property developer via a limited company, currently building two new houses and with experience of renovating 10 houses. You only need to register for CIS if you employ people on a labour-only basis. If you employ a building contractor or even a single self-employed person like a bricklayer, provided they supply a proportion of the materials (even if it’s just wall ties), you are not responsible for deducting their tax at source via CIS before you pay them. For example, on my current build valued about £400K I am employing a series of subcontractors for every step of the project; they all deal with their own tax and supply their own public liability and personal injury insurance."

Thanks 🙂

Matchmade

11:11 AM, 20th January 2015, About 9 years ago

Hello Mic, I'm not an accountant so you should talk with him or her, irrespective of what I say. My advice from my accountant in 2012 was that I did not need to register for CIS if I was employing subcontractors who supplied all or part of their own materials. I think I was somewhat misinformed: the real criterion for not registering is the size of my business: contractors only need to register for CIS if "you usually spend more than £1 million a year on construction" (ref: https://www.gov.uk/what-you-must-do-as-a-cis-contractor). Other websites I've looked at say the rule-of-thumb for "usually" means £1 million a year over a three-year period. I don't have this level of business and from the sound of it, neither do you.

The HMRC page that you cite is somewhat misleading because it says that if you are running a property investment company which is undertaking a one-off development, then you must register for CIS. This fails to mention the size rule of £1 million. Since you are only doing £800,000 of work, and the project is a one-off, it looks as if you don't need to register: just leave the CIS admin to your building contractor. If you employ some occasional sub-contracted labour for one-off tasks like fencing, you should be able to pay them gross and ignore CIS: it is the subcontractor's responsibility to submit a self-assessment tax return.

But again, your accountant is meant to be your ally: have a talk with him or her to establish the correct position for your exact situation.

Charline Caisse

11:54 AM, 20th January 2015, About 9 years ago

Reply to the comment left by "Mark Alexander" at "05/11/2013 - 19:19":

For small investors like me and mu husband this sounds encouraging! 🙂

Mic Singh

13:04 PM, 20th January 2015, About 9 years ago

Reply to the comment left by "Tony Atkins" at "20/01/2015 - 11:11":

Thanks Tony much appreciated 🙂

hitch hitchcock

10:38 AM, 26th February 2015, About 9 years ago

Hi my question relates to finance and if i can mix personal finance with property development in a ltd company?

I have sufficient funds to buy a property/site outright but not the build cost. In order to obtain the funds I need £200k finance either developer loan or through re-mortgaging my house (£1m owned outright). Developer loans are between 0.65-1% per month, where as mortgages are approx 4% per annum.

I know I can do this personally (eg re-mortgage and use the money for build cost on a second home), but then I would be subject to capital gains tax and because I’m a higher rate tax payer it would be at 40% and not corporation tax @20% on profits and 10% tax on dividends if ltd.

Can I set up a ltd company to develop property (whilst working full time employed as an architect with a salary of £50k), re-mortgage my main home (£1m owned outright), and invest the money from my personal mortgage in the ltd property development company to use on build costs?

To whom does one go to advice on these matters - accountant or mortgage advisor?

Grateful for any help.

Hitch

Richard Mann

13:45 PM, 26th February 2015, About 9 years ago

Hi I'm looking for a property to refurbish/renovate and sell on.
Any idea on what the most tax efficient way of doing this is?
I'll be using part cash part finance.

AnthonyJames

11:21 AM, 27th February 2015, About 9 years ago

Reply to the comment left by "hitch " at "26/02/2015 - 10:38":

Hi Hitch,

With your salary and assets you will surely be able to re-mortgage, and you don't need to tell the mortgage company why you need the money. You might plan to buy a nice car or yacht, or invest in buy-to-let, but it's not really their business. You should of course check each lender's specific requirements with a mortgage broker.

It would definitely pay you to set up a limited company for development purposes. The remortgage funds from your personal home would be invested in the company as its seed capital, mostly as a repayable director loan and a little (typically £100) in exchange for 100 £1 shares in the company. An accountant can help you set this up. It may help to choose an accountant with expertise and other clients involved in property development.

The site purchase could be in your name initially, but written in trust by your solicitor "on behalf of" the limited company: some developers do this in order to fund the purchase using a buy-to-let mortgage in their own name, as it is extremely difficult to obtain a mortgage for a new limited company. However in your case this won't be necessary as you plan to buy for cash, in which case you would invest the site purchase money in the limited company as a director loan, and the site would be purchased in the name of the company.

The limited company would then secure planning permission (if needed), finance the development, and sell the house(s). The proceeds would be used to repay the director loan (perhaps with interest, though that will be taxable at a your highest personal rate), and the company would then pay 20% corporation tax on its profits. The residual profits could then be used to fund a new development, or you could pay yourself a dividend, perhaps in successive years to keep your income tax bill down. If you are building new houses rather than extending and renovating for re-sale, you can register the company for VAT and reclaim all your VAT.

Your corporation and income tax bill can also be reduced by the company paying for certain legitimate expenses, or by employing a lower-paid spouse for secretarial work, book-keeping etc.

Be careful if you are thinking of investing your profits into, say, buy-to-let via the limited company: this is rarely a worthwhile approach as the company might then be regarded by HMRC as an investment company rather than a development one, and will be taxed more like an individual. You need to make sure that at least 50% of your turnover is development-related.

I recommend Carl Bayley's Using a Property Company to Save Tax and Nick Braun's Salary versus Dividends (both published by Tax Café) for more detailed reading.

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