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The current extensive backlog at the Land Registry make the advantages of ‘golden brick’ developments even more appealing to housing providers, but how exactly does a golden brick arrangement work, and what are the benefits to RPs?
A ‘golden brick’ development is where a Registered Provider (RP) takes legal completion of properties that are in the process of being constructed and are beyond foundation level.
Practical completion or ‘handover’ will not take place until the properties are fully constructed, and it is usual that stage payments would be made as the properties are constructed to help with the developer’s/seller’s cash flow.
HMRC advise that it is accepted that a property is being constructed when work has progressed above foundation level. This is usually when walls begin to be constructed upon the foundations. These walls need not be above ground level. However, simply digging and concreting foundations is not sufficient.
A huge advantage of buying properties in at ‘golden brick’ - especially when there are to be future shared ownership plot sales - is that at the time that they are bought in and legal completion takes place, the Stamp Duty Land Tax return can be submitted and the application for registration at the Land Registry can be sent off.
Given the current extensive backlog at the Land Registry, it can take months for registrations to be completed. Therefore, if an RP doesn’t take legal completion of the properties until they are fully constructed (as is the case in ‘turnkey’ developments), it can significantly delay shared ownership plot sales as the applications for registration at the Land Registry can only be sent off when the properties are fully constructed. This is far from ideas as it results in fully constructed properties remaining empty until such time as they have been registered.
With ‘golden brick’ developments, the applications for registration can be submitted whilst the properties are being constructed - as soon as legal completion has taken place - and therefore, the applications can be moving up the queue at the Land Registry as the properties are being built.
Depending on the timescale of the build, it is possible that the properties can be registered in time for handover meaning that as soon as they are fully constructed, the properties will be registered at the Land Registry and ready to be sold.
The other key advantage of ‘golden brick’ developments is that a freehold or long leasehold (more than 21 years) sale of new-build residential accommodation is zero rated for VAT purposes, provided the sale is by the person constructing the accommodation.
Therefore, VAT is not payable by the RP on the land purchase price. The developer/seller will also be able to recover VAT on their related costs even though they have not charged VAT on the sale.
This should be considered at the very outset of a development, when heads of terms are being agreed between the RP and the seller/developer. Due to the advantages outlined above, it is worth enquiring about whether a scheme could be dealt with by way of a ‘golden brick’ arrangement, especially when there are to be shared ownership plot sales.
Seeking early advice from solicitors can be beneficial when negotiating heads of terms as any potential issues can be flagged up at this initial stage.
Exactly what constitutes ‘golden brick’ isn’t clearly defined, so we asked Jim Gempton, Director of VAT Services at BDO LLP to unpick the HMRC guidance.
“It’s true to say that ‘Golden Brick’ means different things to different people. Some say that you just need to lay just one course of bricks above foundation level; or, that there has to be one course of bricks above damp proof course level. In fact, there is nothing as prescriptive as this in HMRC’s published guidance.
“Moreover, contemporary building techniques using steel frameworks, extensive use of glass, and such like means that very often, there aren’t that many actual bricks involved at all, at least not in the early stages of development. If there are no bricks, then, there can’t be a golden one. So, what to do?
“HMRC’s guidance talks about ‘when walls begin to be constructed’, and I would argue that something like a steel construction and the framework for a building is as much the start of construction of a wall as would be brick upon brick?
“In fact, the key consideration is: does it look like a residential property is being built? You certainly need to do more than dig out foundations, or prepare the ground for development. However, if there is clearly a building, with walls visible (whatever they’re made of), this should pass muster. And, of course, it would be prudent to evidence this with photographs, etc, at the time of the transaction.
“Every development will be different, and there is no one-size fits all, so you should take specialist advice. But even without bricks, you could still go for gold(en)!”
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