With Land Club, equity investments are made through the purchase of shares in a UK limited company established specifically to own the property development. This company is called a Special Purpose Vehicle (“SPV”).
When the SPV purchases the property it will have to pay Stamp Duty Land Tax (SDLT). This is calculated dependent on the value of the property at rates between 3% and 15%. In certain situations where the SPV is buying more than 6 properties and there is a “mixed use” element (ie residential and commercial) and there may be an opportunity to apply lower commercial rates of SDLT.
The SPV’s taxable profit – which will include any gain on any disposal of the property - is subject to Corporation Tax which is currently charged at 19%.
After the property is sold your investment will be returned to you and any gain paid as a dividend. For tax year 2018-19 all UK tax payers have a £2,000 tax free dividend allowance. Dividends over-&-above this are taxed at your marginal rate of Income Tax. Currently these are 7.5% for basic rate tax payers, 32.5% for higher rate tax payers and 38.1% for additional rate tax payers.
The Land Club Bond
If The Land Club Bond is held in in an IFISA then any interest paid is not taxable.
Payments of interest made in respect of investments not held in an IFISA are taxable and subject to deduction of income tax at the basic rate (currently 20%). Depending on your personal circumstances you may need to pay additional tax or be able to reclaim some or all of the tax deducted.
The foregoing is based on our understanding of current tax law and you should be aware that tax rates and allowances are subject to change. If you are in any doubt about your tax position you should seek advice form a qualified professional.