On our invented scheme, the site costs £19,500 in SDLT and the SPV pays £92,625 of corporation tax on £370,500 of profit. The flats are simple, with a zero-rated build and zero-rated sales. The shops are where the money moves: £107,500 of VAT depends on opting to tax before the leases are granted.
Key facts
- Non-residential SDLT rates are 0% up to £150,000, 2% on the next £100,000 and 5% above £250,000[1].
- SDLT is charged on any VAT payable on a land transaction[2].
- Construction can only be zero-rated for the qualifying parts of a mixed-use building[3].
- A freehold sale of a new commercial building is standard-rated, and a building is new for three years from completion[4].
- Corporation tax is 25% on profits over £250,000 for the financial year starting 1 April 2026[5].
What SDLT does the SPV pay on the site?
Our invented SPV buys a cleared former car showroom site in a North West town for £600,000. There are no dwellings on it, so non-residential rates apply in 2026/27: 0% up to £150,000, 2% on the next £100,000 and 5% above £250,000[1]. The bill is £19,500.
Mixed property, with both residential and non-residential elements, uses the same table[1]. So a parade with an old flat above would land in the same place.
One point changes the figure. Chargeable consideration includes any VAT payable on the purchase[2]. If the seller has opted to tax and charges VAT at 20%[6], SDLT runs on £720,000 and the bill rises to £25,500. The VAT can come back on the VAT return. The extra £6,000 of SDLT can't.
How is VAT charged on the build contract?
The contractor can zero-rate work on new dwellings, but only on the qualifying parts of a building. HMRC's own example is a shop with a flat above[3]. The rule that allows the split is Note 10 to Group 5 of Schedule 8 to the VAT Act 1994[7][8].
Our £1,950,000 build splits 75:25 by floor area. The flats' £1,462,500 is zero-rated. The shops' £487,500 carries £97,500 of VAT.
The split has to be fair and reasonable. If the contractor doesn't apportion at all, none of the work can be zero-rated[3]. Our post on VAT on mixed-use new builds covers the methods.
Does the sale of the shops carry VAT?
Yes, by default. The freehold sale of a new commercial building is standard-rated, and a building is new for three years from completion[4].
Our SPV sells the three let shops to an investor for £720,000. That's £144,000 of VAT on top. The buyer can usually recover it, but it still pays SDLT on the VAT-inclusive £864,000[2]. At non-residential rates, that's £32,700.
The alternative is a transfer of a going concern. A let property sold with the benefit of its leases can be a property rental business transfer[9]. For a new building, the buyer must opt to tax, notify it by the time of supply, and confirm the option won't be disapplied[9]. No VAT is charged, so SDLT runs on the VAT-exclusive price[2]. The buyer pays £25,500, which is £7,200 less.
What decides whether the VAT on the shops comes back?
The leases. A grant of a lease is normally exempt from VAT unless the landlord opts to tax[4]. Our SPV lets the shops before it sells them.
If it opts to tax first, the rents are taxable and the VAT on the commercial costs stays recoverable. If it doesn't, that VAT is linked to exempt lettings. Here that's £97,500 on the build and a quarter of the £40,000 of fee VAT. £107,500 in all.
The de minimis rule won't save it. Exempt input tax must average no more than £625 a month and be no more than half of all input tax[10]. £107,500 over a two-year build is nearly £4,500 a month.
How much corporation tax does the SPV pay?
For the financial year starting 1 April 2026, the main rate is 25% on profits over £250,000. The small profits rate is 19% on profits under £50,000, with marginal relief in between[5].
Our SPV makes £370,500, so it pays the main rate: £92,625. If the £107,500 of shop VAT is lost, it becomes a cost. Profit falls to £263,000 and tax to £65,750. The net cost of the mistake is £80,625.
Running several SPVs? Our post on associated companies and marginal relief explains how a group of companies is treated.
An invented North West SPV with no associated companies. It buys a cleared site, builds 12 flats over three ground-floor shops, sells the flats, and sells the let shops to an investor as a going concern. It opted to tax the shops before letting them. All costs exclude recoverable VAT.
Costs
Site: £600,000
SDLT at non-residential rates: £0 on the first £150,000, £2,000 on the next £100,000, £17,500 on the remaining £350,000. Total £19,500[1]
Build contract: £1,950,000. Flats £1,462,500 zero-rated, shops £487,500 plus £97,500 VAT[3]
Professional fees: £200,000 plus £40,000 VAT
Finance: £115,000
Sales and legal costs: £45,000
Total costs: £2,929,500
Sales
12 flats at £215,000: £2,580,000, zero-rated[4]
Three let shops as a going concern: £720,000, no VAT[9]
Total sales: £3,300,000
Result
Profit: £370,500
Corporation tax at 25%: £92,625[5]
If the shops had been let without opting to tax
VAT lost: £97,500 plus £10,000 = £107,500[10]
Profit falls to £263,000. Corporation tax £65,750
Net cost after tax: £80,625
Mixed-use schemes are usually appraised as flats with some shops attached. For tax, it's the other way round. The flats are simple. The shops carry the VAT risk and most of the decisions.
Settle three things before the first lease is signed. Opt to tax the commercial units. Agree the build apportionment with the contractor in writing. And decide early whether the shops will be sold let or vacant, because only a let sale opens the door to a going concern.
Common questions
Can the whole building be zero-rated if the flats are most of it?
No. Only the qualifying parts can be zero-rated, so the work on the shops is standard-rated[3].
Is SDLT charged on the VAT in a purchase price?
Yes, where VAT is payable on the transaction[2]. VAT from an option to tax that only takes effect after the effective date doesn't count[2].
What does the buyer need to do for a going concern sale of a new building?
Opt to tax, notify it by the time of supply, and confirm to you that the option won't be disapplied[9].
When does a commercial building stop being new for VAT?
Three years from completion[4]. After that, a freehold sale follows the normal exempt rule unless you've opted to tax[4].
Sources
- GOV.UK: SDLT rates for non-residential and mixed land and property. www.gov.uk/stamp-duty-land-tax/nonresidential-and-mixed-rates
- HMRC Stamp Duty Land Tax Manual SDLTM03800: interaction with VAT. www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm03800
- HMRC VAT Notice 708: buildings and construction (paragraphs 3.1.2, 3.5.1 and 3.5.2). www.gov.uk/guidance/buildings-and-construction-vat-notice-708
- HMRC VAT Notice 742: land and property (paragraphs 3.1 and 3.2). www.gov.uk/guidance/vat-on-land-and-property-notice-742
- GOV.UK: Corporation Tax rates and allowances. www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-and-allowances-corporation-tax
- GOV.UK: VAT rates. www.gov.uk/vat-rates
- HMRC VAT Construction Manual VCONST17200: apportionment for part-qualifying buildings. www.gov.uk/hmrc-internal-manuals/vat-construction/vconst17200
- Value Added Tax Act 1994, Schedule 8, Group 5. www.legislation.gov.uk/ukpga/1994/23/schedule/8
- HMRC VAT Notice 700/9: transfer of a business as a going concern (paragraphs 2.3 and 6.1). www.gov.uk/guidance/transfer-a-business-as-a-going-concern-and-vat-notice-7009
- HMRC Partial Exemption Guidance PE24500: de minimis. www.gov.uk/hmrc-internal-manuals/vat-partial-exemption-guidance/pe24500
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here. Please take advice before acting on anything above.