What do developers look for?

Just as a matter of interest, is each garden regarded as a separate devolopment, and hence in the example you quote, neither of the two,

Are you talking about just a developer, or a builder/developer?

Asking how much a flat costs to build isn't capable of being given a sensible answer unless we know the size and standard of fit out, and probably one or two other variables, like for instance the price that was paid for the land and any risks involved. There are various internet sites that can give you typical building costs per m2 for various locations, standards and type of building and size of building.

Similarly with what it will be worth. You'd need to define 'worth'. Worth to the buyer or seller?

I suspect a developer would probably look for a return of 7-10%. A builder/developer, taking on board more risk because of the actual construction phase, might expect 10-15%

Their profit will be based on what their business model requires, and to a large extent will depend on how quickly they generally turn over their cash funding.

Rgds

__ Richard Buttrey Grappenhall, Cheshire, UK __________________________

A developer will take advice on potential sales prices to determine total income. They typically look for 20% profit margin, 40% costs and 40% for land. The price paid for the land works the opposite to normal, in that the value is sales price - costs and profit.

Cost of building will vary depending on house or flat, how luxurious, etc. A typical house building cost would be 60/sq ft (excluding land), but flats are much more difficult to estimate.

John

Oh my God. The ice maidens have been watching *those* programmes on the telly, and if a merchant banker and his cousin can do it in their spare time, while holding down a full time job, then ...

Go Girls Go!

Thanks John, "20-40-40" is a rule of thumb I can relate to, bearing in mind the risks and the large sums involved.

No but this scenario has always been evisaged, the valuation of the house for IHT purposes doesn't include any speculation about theoretical potential for development (am I right?) whereas the (hopefully) much higher sale price very shortly afterwards will.

Not an easy question to answer, I reckon. If you have developers beating at your door, offering you pots of cash to take the house off your hands, then that's what you could get on the open market for it even if it's more than you could get on the open market from a "normal" I-want-to-live-in-it-as-it-is buyer. So it could put the IHT valuation up.

Not that it would make a huge difference, since what you gain from a lower IHT valuation, you lose in CGT after the event, regardless of whether you sell to a developer or act as your own developer.

Blimey Ronald Al hadn't considered CGT. These are the most extreme of realistic possible outcomes, perhaps you could tell her where the dangers are coming from and what she needs to start learning about:

a) Privately to someone who will live in it... b) To a developer who will extend and divide it. c) Together with next door to a developer who demolishes them both

...for £772,500.

Could the IHT valuation be revisited and CGT kick in and the £250,000 "profit" effectively be taxed at 80 percent :( ?

It would be 60 percent anyway. Don't answer this Ronald I going to do a crash course in CGT and answer it for myself.

Where *do* you get 60% from? Mind you, in the scenario you describe, the answer is simple.

Yup because the valuation is the same in the IHT calculation and the CGT calculation. If the valuation for IHT purposes goes up £100K Cand and Bern will lose £40K IHT but Al will recover £40K CGT. That's when things start looking a bit unfair on Cand and Bern.

Not in your scenario's two sub-scenarios it isn't. I was referring to the whole scenario, not the sub-scenario of non-revisitation. Actually, it's for a much-closer-to-home reason. That's a hint, by the way.

Well, give or take a factor of two. If the IHT valuation of the house goes up by 100k, the estate valuation only goes up by 50k and thus B&C's IHT bill by 20k.

But wasn't there the complication of Al's half not having been held for

This means all three maidens need to come to an agreement as to how the IHT bill is to be split equitably amongst them.

Recover? No. See above.

Yes, unless Al does the honourable thing and pays them 90% of half the revisited valuation, instead of 90% of half the original valuation.

You forgot to answer the 60% question.

I find all this totally baffling Ronald.

Okay that was the 80% converted into 60% when I fleetingly remembered to ?give or take a factor of two?.

My scenario had three sub-scenarios:

a) Privately to someone who will live in it... b) To a developer who will extend and divide it. c) Together with next door to a developer who demolishes them both

The ?much-closer-to-home reason? is presumably the land under the house? Development land is subject to CGT whereas a PPR isn?t?

Presumably Al might consider living in the house for a few months Mar-Apr (if she can raise a bridging loan) to make it her PPR?

Everyone?s happy at the moment because (subject to stock market and housing market fluctuations) even after swallowing the whole of the IHT (as was envisaged from the start) Bern and Cand will be better off than they would have been if Mary had died 5 years ago and *far* better off than if Mary had gone into a home in which case there would be no IHT and no ?problem?.

In cash terms Al is much better off but in house terms he is no better off. As long as Bern and Cand come away with £100K-ish (and Bern being wealthy isn?t bothered when that happens) everyone will be content.

Thanks for your help Ronald, I?ve found some good worked examples (on the tax returns themselves for example) and will answer your other questions when I?ve figured out what you are asking :)

I lumped a/b/c together as there is no real difference in terms of CGT effect. The two sub-scenarios I meant were (I) the IHT valuation is revisited, and (II) it stands unchanged.

"Home" was the operative word. AIUI PPR exemption applies, so CGT is not an issue at all. This would be different if Al did not exercise the option to buy, and if the whole trio get involved in a/b/c, because only Al gets PPR exemption in respect of her share.

I thought it *already was* her PPR, as she's been living there all these years caring for Mary. All that's happening now is that she's buying the other half, but she's already living in the whole house, isn't she?

Or was this one of two residences, with the house in question not being her *main* residence? Where did Helen live?

Hope so, these are really difficult things to check Ronald, thanks for your advice, I will try to confirm it.

Who the hell is Helen?

There are so many variables it is nice to have them lumped together like this so they cease to be variables. The house is one house but it is a very big house where people can live completely separately if they choose to do so or can wander around and bump into people if they prefer that. The ideal set-up for a "granny annexe" in fact. It is difficult enough to get on with your own relations let alone somebody else's and privacy is so precious.

A further variable is that:

So the split could be effected by chopping up the property into two or three bits.

Confirm it? I'm sorry if I got the wrong end of the stick, here, but I was under the impression that Al wasn't a friend but a "friend".

Helen of Troy. You know, Al's, er, husband.

It may be big, but unless it is actually already divided into separate dwellings, each with their own front door (even if internal), then you (I mean she) should be all right.

the probate value of the house is what it would fetch on the day of death if it had been properly marketed. So, if tehre is recognised development potential it should be reflected in the probate value I believe.

Even if the low probate value is accepted by Capital Taxes there will be Captial Gains Tax to pay on the difference between sale price and probate value at 40% (same as the inheritence tax rate) so the actiual probate valuation might make no difference to the total tax paid.

However, the CGT would not apply if the estate passed the house to a benefiary who then moved in making the house their main residence for a period.

Robert not an expert

Indeed. So, presumably, if a valuation was carried out which did not take the potential into account, CTO could in principle seek to substitute a higher valuation after the event.

CGT rate isn't necessarily 40%. If the difference is small enough, the annual exemption, not to mention spare capacity in the 20% (or even 10%) band can reduce the amount on which 40% is payable by a substantial proportion.

Or even, as in this case, where the beneficiary is already living there.

You mean Maur. Maur lives with Al and there is only one house, Al and Maur were renting before they moved in with Mary.

Excellent. Dividing a house horizontally into maisonettes seems wrong somehow, if Al could find a suitable way of dividing it vertically keeping the back garden for a year or three there would be no price for any nosey-parker...whoops I mean would-be champion tax inspector...at the Revenue to compare it with.