Most efficient way to purchase a house to demolish & self build

WRussell

Hi Guys,

Wondering if someone could help me out please. 

I am potentially going to purchase a property via my limited company. The property in question is structurally impaired & requires demolishing. My vision would be to ultimately purchase, demolish & self build.

My query is around how to efficiently purchase a property in the first instance bearing in mind my intent is to self build thereafter.

Initial thoughts would be to simply purchase under a BTL vehicle within my limited company then close down the mortgage & convert to a self build mortgage vehicle at a later date once plans & builders are appointed. I have read around commercial mortgages also however would like some advice on the best route in terms of lending vehicle & if need be the most efficient transition between vehicles. 

If someone could give me there viewpoint as to what they feel is best that would be of great help. 

Cheers
Will

eddddy

I doubt you'd get a BTL mortgage on a structurally impaired building.

Do you have a track record in the property development business? 

If you're a first timer, with no track-record in development, you might find it very difficult to raise finance for development. Lenders would see you as very high risk.


Maybe a self-build mortgage would be an option. But I believe you can only borrow up to 75% of the land value initially - so that wouldn't include the value of the 'impaired' building, or the costs of demolition. I don't know if the lender would expect the existing building to be demolished before they'd lend.


Obviously, the risk to the lender would be that they lend on a 'structurally impaired' building - and you make a mess of the demolition and run out of money - and they have to repossess a piece of land with a pile of rubble, which is worth less than the original structurally impaired building.

 

SDLT_Geek

WRussell said:

Hi Guys,

Wondering if someone could help me out please. 

I am potentially going to purchase a property via my limited company. The property in question is structurally impaired & requires demolishing. My vision would be to ultimately purchase, demolish & self build.

My query is around how to efficiently purchase a property in the first instance bearing in mind my intent is to self build thereafter.

Initial thoughts would be to simply purchase under a BTL vehicle within my limited company then close down the mortgage & convert to a self build mortgage vehicle at a later date once plans & builders are appointed. I have read around commercial mortgages also however would like some advice on the best route in terms of lending vehicle & if need be the most efficient transition between vehicles. 

If someone could give me there viewpoint as to what they feel is best that would be of great help. 

Cheers
Will

If you are buying in England then there are some complicated stamp duty land tax issues here.  

If the price is over £500,000 a 15% flat rate could apply.  Below that you would expect the 3% surcharge to apply.

You could look up the Bewley case, about whether a building is so derelict as not to count as a dwelling for SDLT purposes.

eddddy

SDLT_Geek said:

You could look up the Bewley case, about whether a building is so derelict as not to count as a dwelling for SDLT purposes.

But obviously, a derelict building wouldn't be suitable for a BTL mortgage.

oz0707

SDLT_Geek said:

WRussell said:

Hi Guys,

Wondering if someone could help me out please. 

I am potentially going to purchase a property via my limited company. The property in question is structurally impaired & requires demolishing. My vision would be to ultimately purchase, demolish & self build.

My query is around how to efficiently purchase a property in the first instance bearing in mind my intent is to self build thereafter.

Initial thoughts would be to simply purchase under a BTL vehicle within my limited company then close down the mortgage & convert to a self build mortgage vehicle at a later date once plans & builders are appointed. I have read around commercial mortgages also however would like some advice on the best route in terms of lending vehicle & if need be the most efficient transition between vehicles. 

If someone could give me there viewpoint as to what they feel is best that would be of great help. 

Cheers
Will

If you are buying in England then there are some complicated stamp duty land tax issues here.  

If the price is over £500,000 a 15% flat rate could apply.  Below that you would expect the 3% surcharge to apply.

You could look up the Bewley case, about whether a building is so derelict as not to count as a dwelling for SDLT purposes.

Interesting case. Does that mean a building plot is not residential in terms of sdlt? Would it be the case if you were buying a plot with existing dwelling to be demolished and new one to be constructed that if demolition  carried out before completion then it swerves residential sdlt?

user1977

oz0707 said:

SDLT_Geek said:

WRussell said:

Hi Guys,

Wondering if someone could help me out please. 

I am potentially going to purchase a property via my limited company. The property in question is structurally impaired & requires demolishing. My vision would be to ultimately purchase, demolish & self build.

My query is around how to efficiently purchase a property in the first instance bearing in mind my intent is to self build thereafter.

Initial thoughts would be to simply purchase under a BTL vehicle within my limited company then close down the mortgage & convert to a self build mortgage vehicle at a later date once plans & builders are appointed. I have read around commercial mortgages also however would like some advice on the best route in terms of lending vehicle & if need be the most efficient transition between vehicles. 

If someone could give me there viewpoint as to what they feel is best that would be of great help. 

Cheers
Will

If you are buying in England then there are some complicated stamp duty land tax issues here.  

If the price is over £500,000 a 15% flat rate could apply.  Below that you would expect the 3% surcharge to apply.

You could look up the Bewley case, about whether a building is so derelict as not to count as a dwelling for SDLT purposes.

Interesting case. Does that mean a building plot is not residential in terms of sdlt? Would it be the case if you were buying a plot with existing dwelling to be demolished and new one to be constructed that if demolition  carried out before completion then it swerves residential sdlt?

Effectively yes, what counts is what is actually there at completion.

Obviously that can be a downside in other circumstances eg if you're treated as buying a "second home" even though your plan is just to add it to your neighbouring house. 

oz0707

user1977 said:

oz0707 said:

SDLT_Geek said:

WRussell said:

Hi Guys,

Wondering if someone could help me out please. 

I am potentially going to purchase a property via my limited company. The property in question is structurally impaired & requires demolishing. My vision would be to ultimately purchase, demolish & self build.

My query is around how to efficiently purchase a property in the first instance bearing in mind my intent is to self build thereafter.

Initial thoughts would be to simply purchase under a BTL vehicle within my limited company then close down the mortgage & convert to a self build mortgage vehicle at a later date once plans & builders are appointed. I have read around commercial mortgages also however would like some advice on the best route in terms of lending vehicle & if need be the most efficient transition between vehicles. 

If someone could give me there viewpoint as to what they feel is best that would be of great help. 

Cheers
Will

If you are buying in England then there are some complicated stamp duty land tax issues here.  

If the price is over £500,000 a 15% flat rate could apply.  Below that you would expect the 3% surcharge to apply.

You could look up the Bewley case, about whether a building is so derelict as not to count as a dwelling for SDLT purposes.

Interesting case. Does that mean a building plot is not residential in terms of sdlt? Would it be the case if you were buying a plot with existing dwelling to be demolished and new one to be constructed that if demolition  carried out before completion then it swerves residential sdlt?

Effectively yes, what counts is what is actually there at completion.

Obviously that can be a downside in other circumstances eg if you're treated as buying a "second home" even though your plan is just to add it to your neighbouring house. 

So previous use doesn't matter as some websites allude to?

Surely non residential wouldn't matter if "second home" because there is no surcharge anyway?

SDLT_Geek

oz0707 said:

SDLT_Geek said:

If you are buying in England then there are some complicated stamp duty land tax issues here.  

If the price is over £500,000 a 15% flat rate could apply.  Below that you would expect the 3% surcharge to apply.

You could look up the Bewley case, about whether a building is so derelict as not to count as a dwelling for SDLT purposes.

Interesting case. Does that mean a building plot is not residential in terms of sdlt? Would it be the case if you were buying a plot with existing dwelling to be demolished and new one to be constructed that if demolition  carried out before completion then it swerves residential sdlt?

If at the "effective date" of the purchase the buyer acquires a cleared site then the buyer is not buying a "dwelling", unless there is a building in the process of construction at that date.  If the buyer is not buying a "dwelling" then the 3% surcharge cannot apply (nor the 15% flat rate in the context of a company buying for over £500,000).

If the land acquired does not form part of the garden or grounds of another dwelling then the acquisition is of "non-residential" property, so the non-residential rates of SDLT apply (with a top rate of 5%).
  
There can be a trap with the "effective date" point.  This is usually the date of completion of the purchase.  But if the buyer carries out the demolition of a dwelling on the property then the buyer "taking possession" is likely to trigger an earlier effective date.  On that date the property is a dwelling, so the residential rates apply, possibly with the 3% surcharge or even the 15% flat rate applying (for companies buying for over £500,000).

SDLT_Geek

oz0707 said:

So previous use doesn't matter as some websites allude to?

Surely non residential wouldn't matter if "second home" because there is no surcharge anyway?

SDLT is based, as a general rule, on the nature of the property on the "effective date" of the transaction.  

It can make a big difference to the amount of the SDLT whether the property counts as "residential" or as "non-residential" even without the 3% surcharge applying.

The rates tables are different, with residential rates (no surcharge) going up to 12% and non-residential rates going up to 5%.

theartfullodger

WRussell said:

Hi Guys,

Wondering if someone could help me out please. 

I am potentially going to purchase a property via my limited company. The property in question is structurally impaired & requires demolishing. ...

Terraced, semi, detached??

Overall however sounds v challenging without buying & re-building for cash, then mortgaging....

oz0707

SDLT_Geek said:

oz0707 said:

SDLT_Geek said:

If you are buying in England then there are some complicated stamp duty land tax issues here.  

If the price is over £500,000 a 15% flat rate could apply.  Below that you would expect the 3% surcharge to apply.

You could look up the Bewley case, about whether a building is so derelict as not to count as a dwelling for SDLT purposes.

Interesting case. Does that mean a building plot is not residential in terms of sdlt? Would it be the case if you were buying a plot with existing dwelling to be demolished and new one to be constructed that if demolition  carried out before completion then it swerves residential sdlt?

If at the "effective date" of the purchase the buyer acquires a cleared site then the buyer is not buying a "dwelling", unless there is a building in the process of construction at that date.  If the buyer is not buying a "dwelling" then the 3% surcharge cannot apply (nor the 15% flat rate in the context of a company buying for over £500,000).

If the land acquired does not form part of the garden or grounds of another dwelling then the acquisition is of "non-residential" property, so the non-residential rates of SDLT apply (with a top rate of 5%).
  
There can be a trap with the "effective date" point.  This is usually the date of completion of the purchase.  But if the buyer carries out the demolition of a dwelling on the property then the buyer "taking possession" is likely to trigger an earlier effective date.  On that date the property is a dwelling, so the residential rates apply, possibly with the 3% surcharge or even the 15% flat rate applying (for companies buying for over £500,000).

Is the trick then generally to negotiate and agree for the vendor to have dwelling demolished between exchange and completion If buying a property being marketed as existing detached with permission to demo and build new.