Selling land for developments - are your foundations strong? - 06/07/2017
The sale of land for development is becoming ever more common as the government continues to address the UK’s housing shortage. With significant sums being paid, careful planning is required to ensure landowners benefit fully from proceeds received. Here are some of our top tips to look out for:

Look out for deferred payments
It is common for proceeds to be paid in instalments. Regardless of how the proceeds are received, tax is usually assessable, and payable, on the total proceeds based on the date of exchange of contracts. It is therefore vital to ensure sufficient cash is received before tax is payable! 

VAT - Should you Opt to Tax?
Landowners may benefit from electing to Opt to Tax their land, particularly if they are involved in a Promotion Agreement and incurring significant costs upon which VAT is charged. Opting to Tax allows the landowner to reclaim the VAT on such costs, ultimately minimising the deductions from the gross proceeds.

Keep out of the Income Tax trap
Where developments are deemed to be a ‘joint venture’ between the developer and the landowner, the proceeds are likely to be subject to Income Tax rates, likely to be 45%. It is therefore vital for landowners to ensure their structure falls into the Capital Gains Tax regime, securing rates of 20%, or better still, 10% with the use of Entrepreneurs’ Relief. Also, if the seller is deemed to be involved in a development or other property trade, rather than selling an asset, Rollover Relief will not be available.

Plan ahead
Land continues to attract both Capital Gains Tax and Inheritance Tax reliefs. These reliefs can disappear when wealth changes from land to cash. Therefore, landowners should consider who ultimately they would like to benefit from the proceeds and take advantage of planning opportunities, prior to converting land to cash. A long-term strategy is needed, well in advance of seeking planning permission, or a sale, to maximise the value of available tax reliefs on the sale, and potentially later on death. 

Needless to say, there is huge potential for landowners to receive great returns on their assets; the right advice is needed to maximise this potential.

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