Property converted or adapted as residential property
The definition of residential property is a building or structure that is used or suitable for use as a dwelling. It does not therefore apply to property, including land, which is not residential property when the investment-regulated pension scheme acquires it. But the building or structure may become residential property whilst owned by the pension scheme as a result of being subsequently subject to development.
Whilst it is in the course of construction, conversion or adaptation such land and property is not residential property because during that period it is not suitable for use as a dwelling.
Land and buildings being converted are treated as residential property from the point when they become suitable for use as a dwelling.
In any specific case this point should be determined by taking a common sense approach to the facts and circumstances.
Essentially the question to be answered is: would a person normally live in that dwelling?
The point at which this occurs will normally be when the works are substantially completed. In the case of UK property this is likely to be when the certificate of habitation is issued.
A property that is sold before the development or conversion is substantially completed never becomes residential property.
With the introduction of interest rate restrictions from 2017/18 for individual Property Investors there has been a lot of interest in incorporating property businesses.
Technically property investment isn’t a business although HMRC seem to have blurred the lines with their Making Tax Digital documents which describe Property Investment as a Business.
The recent clarification from the Ramsay case has meant that even investors with a small portfolio are likely to qualify for incorporation tax relief provided the landlord is sufficiently active in managing their properties. Claiming Incorporation Tax Relief rolls forward the capital gain into the company.
So that leaves SDLT and re-financing costs as the next major hurdles.
The rules on SDLT for Partnerships are in the Finance Act 2003 Schedule 15 and amendments in the Finance Act 2006 Schedule 24.
It is complicated but essentially it comes down to the following formulae
MV x (100 – sum of lower proportions (SLP))%
What this means is that if the land being put into the partnership is effectively retained by the transferor-partner (or persons connected with the transferor) after the transaction, you basically end up with:
MV x (100-100) = £0
So a husband and wife partnership owning 50% each could transfer the property to a company for 50% of the shares each and in theory there would be no SDLT charge.
To qualify as a Partnership or LLP:
You need to be registered with HMRC
You need a partnership agreement
You need separate bank accounts
Leases and Agreements need to be in the name of partnership
HMRC also require that any restructuring is for Commercial Reasons and not to avoid tax, otherwise it will be caught by anti tax avoidance rules.