Everything went swimmingly until he fell down one of the numerous big holes dotted around the development landscape, seemingly designed to entrap the uneducated and unwary. Luckily for him, the experience led to an epiphany and a healthy appetite to understand where all the big holes were located, which we were happy to help him with. After all, minefields are only a major problem if you don’t know where the mines are. However, one of his challenges was the way he’d set up his property development business structure. He’d ended up paying over £80,000 in tax that he would have avoided if he’d known one simple fact at the outset. Education comes at a price, but all too often, ignorance can end up costing significantly more. And like so many tax challenges, he wasn’t able to unpick what had happened and start again. Frustrating, to say the least, and a stark reminder that it pays to get things right from the outset.
So, where should you start when it comes to structuring your property development business and thereby dodging any unnecessary tax bills? I need to mention at this point that I’m not an accountant, so I can’t give you any formal advice. But I can give you some pointers that could steer you in the right direction when you speak to your own accountant or tax advisor (something you should definitely do). The first thing to be aware of is that each development project will need to be set up as a brand-new limited company, known as a special purpose vehicle (SPV). Your commercial lender will insist on it, as it ensures there’s no extraneous baggage, such as previous trading or other shareholders, that could complicate matters for them. It’s a clean sheet of paper through which all of the SPV’s financial transactions and contracts will be run. If you have a joint venture arrangement, you and your JV partner will typically be co-directors of the SPV, with a shareholding to match your respective stakes.