Build on your own land to sell - earn development profit and the full value of the land.
It’s easy to say that building on your own land to sell is the way to generate the greatest yield for your asset - earning development profit plus the value of the land, but as a Landowner, what are the things to consider when weighing-up your options, and is it possible for you to develop your own land?
Earning money from the sale of the land and profiting from the development of the land are different beasts altogether and need to be considered separately. First we’ll look at selling your land for the greatest return, and second, how to earn profit from the sale of the completed development.
1. Selling your land for profit and Capital Gains Tax
Do you qualify for Principal Primary Residence (PPR) Capital Gains Tax (CGT) exemption? PPR CGT exemption on land-with-planning may be possible (under TCGA 1992, ss 222-226 ’Relief on disposal of private residence‘) if the sale is of ‘land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area’ (s222 (1)(b)). Generally speaking, if you live in an urban area and the land is directly attached to your home then you could qualify for PPR CGT exemption, entitling you to receive the full purchase price of the land tax free. To find out if you qualify, we always recommend consulting your legal and tax advisors.
2. Developing land and selling homes for a profit
If a developer were to buy your land, the land would be purchased by an SPV and the SPV would then borrow development finance to fund the build. A Development SPV (Special Purpose Vehicle) is a type of limited company set up to hold a property that can be used on one project only (and therefore represents fewer risks and liabilities for the lenders) set up to purchase land from the Landowner for the full land value. Profits from the sale of the development are mostly paid as taxable income to the shareholders of the SPV. This arrangement is the industry standard for developing property.
Can Landowners capitalise on both PPR CGT exemption and development profit?
At Urban R+D we have created a dynamic commercial arrangement to enable Landowners generate the greatest yield from both the with-planning land purchase price and the development profit from sale of the completed homes. Once planning permission for the development is secured the land is bought by an SPV for the full land value. The Landowner is then installed as the equity shareholder of the SPV enabling them to earn development profit from the sale of the completed build. As with Capital Gains Tax issues, you should consult with your accountant with regard to tax payable on the land sale earnings and income from the development.
Property development is a long, arduous process, but the benefits of seeing it through to the end can be huge, especially if you already own the land. The key to success is to employ the best team to manage the process for you. A development consultant like Urban R+D can curate the entire development process from start to finish on your behalf:
assessing your land for development potential;
pursuing planning permission for the build;
arranging the legal framework and the development finances, and;
employing the best professional team to deliver quality, sustainable family homes.
If you own land, have an appetite for development, and want to see how much you could earn by building on it, get in touch with the Urban R+D team for a free no-obligations viability assessment.