Investor or Developer – How would HMRC treat me?

by Readers Question

8:32 AM, 31st December 2020
About 3 weeks ago

Investor or Developer – How would HMRC treat me?

Make Text Bigger
Investor or Developer – How would HMRC treat me?

I have the opportunity to invest in a small local development of 4/5 barn conversions, either as, purely an investor, or possibly as a director of the company (which will be set up solely for this particular development).

I have a small income from property, so I’m a lower rate taxpayer.

My question is, how will any profit be treated for tax purposes depending on which way I jump?

Many thanks

Sally


Share this article

Twitter Facebook LinkedIn

Comments

Neil Patterson

8:36 AM, 31st December 2020
About 3 weeks ago

Hi Sally,

First off get yourself a qualified and insured accountant and only act on their insured advice.
Secondly when you say invest what do you mean? Are you buying shares in a development company or how are you structuring it?
Thirdly as a director you will personally pay income tax on any PAYE and dividend tax on dividend declarations and or CGT if you have shares to sell.

If you then stray into High rate tax you may wish to consider a Tax consultation. Please see >> https://www.property118.com/tax/

Mark Alexander

9:23 AM, 31st December 2020
About 3 weeks ago

Hi Sally

Is this your deal or are you being invited to invest into another persons project?

Olls63

10:24 AM, 31st December 2020
About 3 weeks ago

You will have no investment in the company as a director unless you are also a shareholder as well. My 1st question would be why do they need you/your money.

Simon Lever

2:57 AM, 3rd January 2021
About 3 weeks ago

You have said that there will be a company set up.
Personally you would be taxed on any salary as a director/employee under PAYE. If you took shares then any dividends would be taxed at 7.5% if you are a basic rate taxpayer and 32.5% if you become a higher rate taxpayer. The first £2,000 of any dividends are taxed at 0% but still use up your basic rate tax band.
The company would be taxed depending on how the intention to use the properties was originally set out. There should be board minutes saying that either “we are buying these properties to develop them and sell them” or “we are buying these properties as an investment and will rent them out once developed”. This sets out the initial intention and can be used as evidence if queried by HMRC.
Things change and if there is no market to sell them they could be rented for a while to gain some income prior to selling them. Conversely they could be sold even if the intention was to rent them as there is too good a price offered.
The corporation tax computation would be calculated on the sales of properties as a gain if the intention was to invest and as trading income if the intention was to trade. All corporation tax is currently charged at 19%
Your personal CGT and IHT position would be different if the company was trading or investing. If trading then holdover relief and entrepreneurs’ relief may be available for CGT and possibly business property relief for IHT. Depends on how the company is perceived by HMRC.
Never have investment properties and properties for trading in the same company.
Take professional advice before doing anything and be prepared to pay for it, it will be cheaper in the long run.

Beaver

9:36 AM, 4th January 2021
About 3 weeks ago

Reply to the comment left by Olls63 at 31/12/2020 - 10:24
That would also be my question: Why do they need your money? And linked to that question my next question would be, in whose name would the land be registered at the land registry? In your name, in the company's name or the name of the builder doing the development? I think if you haven't already done it and the land is not presently in your name my first action would be to download the deeds for the site from the land registry and start from there.

The link is here:

https://www.gov.uk/get-information-about-property-and-land/copies-of-deeds

Sally

19:30 PM, 7th January 2021
About 2 weeks ago

Thank you for your replies. The land has not yet been purchased, It will be purchased and registered in the company's name, if it is considered viable, to develop and sell.
It is someone else's project - the team consists of an architect, an accountant and a builder. When they find a viable site they set up a unique company (of which they would be directors), to develop it and invite others to contribute financially, in order to purchase it outright and cover development costs. They also put in their own money.
I am quite keen to contribute (as it is a local site ) and I should see a return on my money. I'm trying to establish how I should do that. If, for instance I was asked to be a director, would that be the best course of action financially, or should I simply provide some cash funds. I have no worries about the money being returned, they have done this several times.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Could your buy-to-let company share structure be better?

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More