I Am A Property Developer – Ask Me Anything!

Reply to the comment left by "hitch " at "23/03/2015 - 17:20":

I use Cranleys in Basingstoke. You need however to do your own research and decide a level of costs and service expectations that you can live with. There is no point in paying for a Ferrari firm if the business is only a sideline with a small turnover. You also need to get on with your accountant and feel you can ask him or her questions (for which you should expect to pay) relating to business planning, not just the preparation of accounts, so an initial meeting to size up your probable main advisor and assess the firm's working culture can be helpful.

Tony
Just a note here to say thanks for your reply to my post about buying an unregistered house (I somehow managed to post it as "naphar").

I find this blog incredibly interesting and am looking to eventually get into a line of business similar to what you have described in your profile.

First off though, I have a btl house i currently own, which has a side plot, on which I hope to gain planning for a detached 3 bed house, which I will move into. I love the area, and always had the ambition to build my own home.

The other opportunity, if I manage to buy it, will most likely be bought purely as a development opportunity. Odds seem stacked against it currently. However, if I pull it off, I would need to buy with a btl mortgage. So I was pleased to read a recent post above, suggesting that, subject to doing it all the right way, you can indeed put the development through a company, even though the company is owned in your own name. That would make it a much more tax efficient, and growth enabling opportunity.

At what point in the process did you need to define the purchase as having been for the company? Were you able to wait until successful with planning, and if not leave it as a personal btl investment? (Often recognised as most tax efficient way of holding btl properties as opposed to development opportunities, so I have read).

Thanks again

Neil

Reply to the comment left by "Neil Harvey" at "24/03/2015 - 21:24":

Neil,

As regards the development property, please get professional accounting advice.

I am not an accountant and may be incorrect, but I think the situation is as follows: if you regard the property as a personal BTL until after you get planning, then when you loan the cash value of the property to the company and allow the company to use the property as its initial working stock, the cash amount will be the increased with-planning value of the site. You will have made a personal capital gain on which CGT will be payable, but if the increased value is generated quickly, you will also be at risk of being treated as being a property trader, and HMRC will tax your gain as income - not a pretty prospect at 40% or even 45% tax rates.

In contrast, if you record in your personal papers and the company's minutes that you have loaned the cash value of the site (deposit plus stamp duty plus purchase fees and other ancillary costs) to the company before planning is secured, the capital gain will be made by the company, and you will be taxed at company rates. One simple option then would be for the company not to proceed with the development, sell the site to a builder, and repay the BTL lender and your loan. The remainder would be its gross profit, on which it would pay corporation tax at 20%, which is much lower than the personal taxes. It could then distribute the remaining capital to you in the form of dividends or as salary (whichever is most tax-efficient), and either wind itself up or move on to a new project. You will have your loan repaid in full and have extracted more profit from the development than if you had done it as a personal investor or trader.

Tony, thanks, makes perfect sense to me. And rest assured, if I go down this route, it will be with an accountant that knows this stuff advising me. I am an accountant myself, but not my area of knowledge.

Hi Tony,

I had a question about a house I am buying. The house has a through lounge that was created many years back and I want to return back the through lounge to two seperate areas because the front room which has a window I want to make into a 4th bedroom (as the property has 3 bedrooms upstairs) and the rear space I want to make into the living space with sofas and TV however the living space does not have a window, it simply has access to the kitchen using a door and from the other side of the living space it has access to the hallway/passage leading to the front. door being the entrance to the house. Do you think this would be permitted? I only ask because I know that all bedrooms must have windows but was not sure if the living/dining area must have a window?

I hope I have explained this clearly but appologies in adavnce if I have been unclear.

Many thanks as always

Peter

Also Tony I forgot to mention if there were any regulations I need to think about in terms of having a staircase opening straight into the downstairs back living space without having a corridor/passage way wall there? I obviously do not want this because it will make my living space small and feel boxed in and I want the feeling of open space and I also do not have a back window in this living space as mentioned in my previous post. Please try to imagaine a regular 3 bed terrace house with a complete through lounge downstairs and where the kitchen and bathroom are directly behind the through lounge, typical victorian set up. I believe he does not have a window at the back of the through lounge because the kitchen was extended to follow the same width dimensions as the lounge. He wanted to have a seperate kitchen from the lounge and hence the wall. To get to the kitchen from the back of the through lounge he obviously just has a door..

Thanks Tony

Reply to the comment left by "Peter Johnson" at "05/04/2015 - 13:01":

Peter - I suggest you check the planning history of the house. The previous owner will almost certainly have had to seek planning for the kitchen extension, especially if it removed the lounge window. The loss of window is quite unusual and the owner may have been required by Planning to merge the lounge and front room at the same time to ensure there was natural light in the rear room. If this is true, you will be breaking the terms of the planning agreement if you separate the room again into two spaces.

As regards the regulations on natural light, I simply don't know the answer. It's going to be a pretty grim room though with no lighting: are you sure you want this anyway, as it could damage the value of the house? I would talk with Building Control at your council to find out what regulations exist. The best approach may be to open up the lounge to join the kitchen, either completely open or a half-wall with worktop, so you have a long kitchen-diner with lounge facilities and natural light. Make sure you have a good extractor to reduce kitchen smells.

As regards the stairs and hall, I see no reason why you can't make remove the diving wall and make it open plan. There would be problems if the house was a registered HMO (more than two storeys and five people), because the staircase would need to be protected against fire, but with two storeys and four tenants, this should be treated the same as for a couple with two adult children, living in an open-plan house. Again, talk with Building Control though.

Reply to the comment left by "Tony Atkins" at "08/04/2015 - 10:47":

Hi Tony, You are an absolute star! I checked the planning myself just now and discovered that no application was made for planning to extend the kitchen. I called the seller as he had given me his number and he said that he had not bothered with planning as it was just a 'small' extention that was done a few years ago. What kind of crazy mentality is that!

Thanks also for the info about the dividing wall, it is useful to know incase I find myself with this scenario again.

Your advice as always is excelent and thanks once again so much.

Best wishes Peter

Peter,
Depending on where your house is, the previous owner may not have needed planning, as the extension may have fallen within permitted development rights.
It would still have needed building regs approval though.
Regards
Neil

Peter,
Neil is right, but permitted development rights do not apply if the extension is within one metre of the neighbour's boundary: you have to seek planning permission and notify the neighbour under the Party Wall Act. Building Control should have documentation; if they don't, you need to ask your solicitor to insist on seeing proof that the extension work was done to standard, or if you want to continue with the purchase, you could buy an indemnity insurance policy against the construction work being faulty and then seek a certificate of lawful use from Planning to formalise the planning situation.

If your house's setup is a typical 3-bed Victorian, there would have been a main ground floor with a hall, staircase, front room and rear room; there would also have been a single window to the rear overlooking a back yard leading to the garden and a door leading to a "flyout" kitchen and maybe a flat-roof bathroom (added in the 1970s when there were grants available for such extensions, which replaced outdoor WCs). It sounds to me as though the previous owner may have "filled in" the back yard by enlarging the kitchen and blocking up the old rear window. Lord knows what the neighbour thought of this arrangement: they should have complained to Planning. If you divide up the through lounge as proposed and merge the kitchen and rear room you may get enough light into the rear, but it's always going to be dark in there.