Potential SDLT avoidance by developer

natsplatnat

Hi All,

Full disclaimer... I have never bought or sold a property before.

Situation: we are selling a house from an estate (probate) and the potential buyer (a developer) has requested access to the property during an agreed duration window between exchange and completion to carry out renovation. They have offered around 25% deposit on exchange. 

After the delay with probate we would be keen to get this wrapped up asap once probate is granted.

The potential buyer has highlighted that by them having access and completing the works in this 2 months there is a SDLT saving for them.  Can someone let me know how this works?

kingstreet

Unless the consideration is changing (purchase price/amount to be paid?) I can't see the impact this would have on SDLT. Unless I'm not seeing something here, which is always possible.

EssexHebridean

What does your solicitor advise on this one? There is a lot to be aware of around this as I understand it - and they would be best placed to make sure that you have all the correct information and know all the risks.

SDLT_Geek

natsplatnat said:

Hi All,

Full disclaimer... I have never bought or sold a property before.

Situation: we are selling a house from an estate (probate) and the potential buyer (a developer) has requested access to the property during an agreed duration window between exchange and completion to carry out renovation. They have offered around 25% deposit on exchange. 

After the delay with probate we would be keen to get this wrapped up asap once probate is granted.

The potential buyer has highlighted that by them having access and completing the works in this 2 months there is a SDLT saving for them.  Can someone let me know how this works?

It sounds like a long shot, but there is a total relief from SDLT for some property trading companies buying from personal representatives https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm21040  I am not sure how gaining entry early would help them though.  If anything, it might bring forward their SDLT liability.

Perhaps they are doing more than a renovation and are converting the property into two or more units, so are looking at multiple dwellings relief?  Again, the early entry might mean that does not work.

km1500

I would strongly caution against letting anyone have posession before completion, especially if they plan to knock the place about. 

How strong are the "developer's" financials ? what happens if they cannot complete and go.insolvent? It is not worth the risk.

Make sure you have insurance in place in case someone is injured or killed. Also in case the property is burned down - yes after exchange it is supposedly their property but that is no comfort it they close down the company or go.insolvent

natsplatnat

EssexHebridean said:

What does your solicitor advise on this one? There is a lot to be aware of around this as I understand it - and they would be best placed to make sure that you have all the correct information and know all the risks.

Very little - but it has been the same on every matter TBH! 

The property will stay as a single unit but is in need of some modernisation.

I did read something last year whereby a developer had done work on a property (before completion) whilst lining up a 3rd party to buy the property from them....but I can't find it for love nor money now!  From memory it was something like that on the completion date the 2nd purchase also went through and the title moved from the initial owner straight to the last person who pays the SDLT. This means the developer never truly owns the property and therefore skips the SDLT?

In my mind the only way that could work effectively is if the developer and last person are linked... like a developer for a property portfolio / rental company?

SDLT_Geek

natsplatnat said:

EssexHebridean said:

What does your solicitor advise on this one? There is a lot to be aware of around this as I understand it - and they would be best placed to make sure that you have all the correct information and know all the risks.

Very little - but it has been the same on every matter TBH! 

The property will stay as a single unit but is in need of some modernisation.

I did read something last year whereby a developer had done work on a property (before completion) whilst lining up a 3rd party to buy the property from them....but I can't find it for love nor money now!  From memory it was something like that on the completion date the 2nd purchase also went through and the title moved from the initial owner straight to the last person who pays the SDLT. This means the developer never truly owns the property and therefore skips the SDLT?

In my mind the only way that could work effectively is if the developer and last person are linked... like a developer for a property portfolio / rental company?

There is a form of "subsale" relief, called "Pre completion transaction relief" for where a property is "turned" with an onwards sale completing at the same time as the purchase.  I did not mention that earlier because the first buyer taking possession early would mean that the first buyer is not entitled to that relief.

The property is in England is it?  I have assumed that.  The rules are different in Scotland and in Wales.

EssexHebridean

If you have told your solicitor that the buyer is pressing you to be given access to begin works after exchange, and before completion - and your solicitor has essentially shrugged their shoulders and offered no input, I would suggest you need another solicitor sharpish. Is it a multi-partner firm? If so check your original introductory letter which should tell you who the “supervising partner” - you can escalate to them. 

mi-key

I don't know about the tax implications, but it is very risky letting someone into the house to do work on it before completing. Would a 25% deposit cover the cost you would have to pay to put it all right to sell again if they half finish work and then pull out of the sale? 

I know a few developers, and all of them buy the house first, then do it up when they own it, then sell it on... It sounds more like yours is doing something to try and juggle their money or funding around then save on tax

propertyrental

Most (decent) solicitors would advise strongly against that.

Having said, some years ago I bought a BTL property from a disillusioned landlord and dd something similar. Between Exchange and Completion I re-painted throughout, repaired the kicked in kitchen door and units, and lined up a window company to replace the windows the day after Completion.

This meant I could get new tenants in almost immediately following Completion.

The seller's solicitor at the time insisted I could not stay overnight and had to return the keys each evenig to the estate agent.

There were certainly some risks to the seller eg had I moved in and then not Completed.

diystarter7

natsplatnat said:

EssexHebridean said:

What does your solicitor advise on this one? There is a lot to be aware of around this as I understand it - and they would be best placed to make sure that you have all the correct information and know all the risks.

Very little - but it has been the same on every matter TBH! 

The property will stay as a single unit but is in need of some modernisation.

I did read something last year whereby a developer had done work on a property (before completion) whilst lining up a 3rd party to buy the property from them....but I can't find it for love nor money now!  From memory it was something like that on the completion date the 2nd purchase also went through and the title moved from the initial owner straight to the last person who pays the SDLT. This means the developer never truly owns the property and therefore skips the SDLT?

In my mind the only way that could work effectively is if the developer and last person are linked... like a developer for a property portfolio / rental company?

Highlighted bit, just as I expected,

Re the stamp - not sure why you are concerned as the solicitor will be managing all of that and not you??

What I'd be worried about is regardless of the 25% deposit on exchange - who will take responsibility as the builder renovates the house, and it crashes or burns down? Insurances need to be in place and not just hearsay/word of mouth etc

Good luck