On our invented eight-house scheme, the SPV pays £19,500 of SDLT on a cleared site, no VAT on the build or the house sales, and £78,125 of corporation tax on a £312,500 profit. It recovers the VAT on its professional fees. Letting a house before sale, or having associated companies, changes the result.
Key facts
- A cleared site with no dwelling on it pays SDLT at the non-residential rates, which top out at 5%[1].
- Building work on new dwellings is zero-rated, and so are the materials supplied with it[2].
- The developer's first freehold sale of a new house is zero-rated, so VAT on costs can be recovered[3].
- Corporation tax is 25% on profits above £250,000[4].
- The £50,000 and £250,000 limits are divided by the number of associated companies[5].
Is the site residential or non-residential for SDLT?
SDLT classifies the land as it stands at the time of the transaction[6]. A cleared site with no dwelling on it, and no garden or grounds of a dwelling, is not residential property[7].
That puts the purchase on the non-residential rates: 0% up to £150,000, 2% from £150,001 to £250,000, and 5% above £250,000[1]. On a £600,000 site, that's £19,500.
If a habitable house still stood on the site at completion, the analysis would be different. Settle the classification before you exchange. There's more in our guide to SDLT for property developers.
How does VAT work on the build and the sales?
The contractor's work on new dwellings is zero-rated. So are the building materials it supplies with that work[2].
The SPV then sells each house freehold. As the person constructing the dwelling, its first grant of a major interest is generally zero-rated[3]. A zero-rated sale is still a taxable supply, so a VAT-registered SPV can recover the VAT it pays on its costs[2].
Architects, surveyors and consultants are always standard-rated[2], at 20%[8]. On £120,000 of fees, that's £24,000 the SPV claims back. Our guide to developer VAT on new builds covers the conditions.
Is the profit a trade or a capital gain?
HMRC uses the badges of trade. They include a profit motive, the nature of the asset, how the purchase was financed and how long it was held[9]. No single badge is conclusive on its own[9].
Here the SPV bought land, built eight houses with development finance and sold them within two years. That points firmly to a trade, so the profit is taxed as trading profit within corporation tax. Our post on property trading vs investment goes further.
What corporation tax rate applies?
The main rate is 25%. The small profits rate is 19% for profits of £50,000 or less, with marginal relief between £50,000 and £250,000[4]. These are the rates for the financial year starting 1 April 2026.
Those limits are divided by the number of associated companies. They are also reduced for an accounting period shorter than 12 months[5].
Our SPV makes £312,500 with no associated companies, so it pays 25% on all of it: £78,125.
What changes the result?
Three things move the numbers most.
Letting before sale. If a house doesn't sell and is let on a residential tenancy, that letting is normally exempt from VAT[3]. Exempt income creates a VAT recovery problem, which we cover in VAT partial exemption for property businesses.
Associated companies. A developer with four companies under common control sees each company's limits fall to a quarter[5]. A smaller scheme can then pay close to the main rate.
The land. If what you buy includes a dwelling, the SDLT classification changes. Check it before you exchange.
An invented North West SPV with no associated companies. All figures exclude recoverable VAT.
Site purchase: £600,000
SDLT: £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: £1,200,000, zero-rated, so no VAT[2]
Professional fees: £120,000, plus £24,000 VAT that is recovered
Finance costs: £180,000 (assumed fully deductible)
Sales and legal costs: £48,000
Total costs: £2,167,500
Sales: eight houses at £310,000, total £2,480,000, zero-rated[3]
Profit: £312,500
Corporation tax at 25%: £78,125[4]
Profit after tax: £234,375
A straightforward new build scheme is mostly about classification and timing. Get the land classed correctly. Register the SPV for VAT before the fees start, so nothing is lost. Count your associated companies before you build the appraisal.
The scheme that goes wrong is usually the one where a house is let "for a few months" while the market turns. Decide what happens to unsold stock before it happens.
Common questions
Does an SPV with only zero-rated sales need to register for VAT?
Registration lets it recover VAT on its costs, because zero-rated sales are taxable supplies[2]. Without it, the VAT on fees is a cost. See our guide to VAT registration for property developers.
Should my builder charge VAT on a new house?
Not on the construction of a new dwelling where the conditions are met. The work and the materials supplied with it are zero-rated[2]. If an invoice includes VAT, query it before you pay.
Is a cleared development site residential for SDLT?
No. Land is classified at the time of the transaction[6], and land with no dwelling or grounds of a dwelling is not residential property[7].
What if a finished house doesn't sell and we let it?
A residential letting is normally exempt from VAT[3]. That can affect VAT you've already recovered, so take advice before you sign a tenancy.
Sources
- GOV.UK: SDLT rates for non-residential and mixed-use land and property. www.gov.uk/stamp-duty-land-tax/nonresidential-and-mixed-rates
- HMRC VAT Notice 708: buildings and construction. www.gov.uk/guidance/buildings-and-construction-vat-notice-708
- HMRC VAT Notice 742: land and property (sections 3.1 and 10). www.gov.uk/guidance/vat-on-land-and-property-notice-742
- GOV.UK: Corporation Tax rates and allowances. www.gov.uk/corporation-tax-rates
- GOV.UK: Corporation Tax marginal relief. www.gov.uk/guidance/corporation-tax-marginal-relief
- HMRC Stamp Duty Land Tax Manual SDLTM00360: residential and non-residential relevant land. www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm00360
- Finance Act 2003, section 116: meaning of residential property. www.legislation.gov.uk/ukpga/2003/14/section/116
- GOV.UK: VAT rates. www.gov.uk/vat-rates
- HMRC Business Income Manual BIM20205: badges of trade summary. www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20205
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.