Housebuilder Tip of the Month: SDLT - Getting ready for your next Joint Venture

Published 25 August 2021

Sometimes developments require you to team up with another developer (or even more than one developer). If structured correctly, this can be quite tax efficient.

There are lots of taxes to be alert to, depending on how you go about your joint venture. VAT or corporation tax and the property’s base costs for example. This article is focussed on SDLT at the point of introduction of the partner to a joint venture. If the land has already been acquired by one developer, correct structuring can ensure no SDLT is payable when another partner joins. The removal of this cost can help maximise the return for both developers.

A key requirement to ensuring no SDLT when a partner joins is making sure the land owner developer holds the development land through an internal LLP as opposed to in a single company’s name (either at the outset, or prior to entering into arrangements with a partner). You can then swap out an internal partner with an external partner without the incoming partner incurring SDLT. We will explain through two alternative scenarios:

• Alpha Ltd (a house builder) holds Greenacre (a development site). The site is worth £10m. It decides to enter into a joint venture with Omega Ltd. Alpha & Omega LLP is formed and the site transferred to it. It is to be a 50/50 JV and Omega Ltd pays £5m. Assuming bare land (meaning commercial SDLT rates) and no VAT, SDLT of £239,500 is due (the SDLT partnership rules ensure Alpha Ltd’s 50% interest does not attract SDLT). This SDLT is strictly payable by the LLP. Commonly Omega Ltd funds this, but if not paid HMRC can pursue either member of the LLP for the debt.

• Alpha Ltd is better prepared this time around and bought the land into an internal LLP (or moved the land into such an LLP in the past). The land is held by Alpha Beta LLP, with Alpha Ltd and its subsidiary Beta Ltd the two partners. Omega Ltd buys into this LLP for the same £5m (perhaps Beta Ltd retires from the LLP, leaving Alpha Ltd and Omega Ltd as 50/50 partners). No SDLT is due.

The end result is identical, but the second structure removes almost quarter of a million of SDLT. This is not an aggressive interpretation of the law, HMRC confirm changes in the membership of house builder partnerships do not attract SDLT in their manuals at SDLTM34010. This is not a straight forward area of law however, we strongly recommend you take tax advice as early as possible – there are traps (many avoidable) which can trigger SDLT.

If you would like to discuss this further, please feel free to contact your usual DAC Beachcroft real estate contact.