Vacant land can be a truly rewarding investment, but it can also have hidden costs. Maybe not right away, but potentially in the long run.
There are annual taxes and potentially property owner’s association fees to consider. There aren’t as many tax benefits. There can be property maintenance issues, cash flow and market conditions to consider too.
Purchasing vacant land might not be as expensive as buying a house, but it’s easy to forget, there are still annual taxes to pay.
If you hold onto your vacant land and don’t do anything with it, you might end up paying double or triple what you did for the land in taxes and have nothing to show for it but the same piece of vacant land.
Stamp Duty Land Tax (SDLT), (also known as simply ‘stamp duty’), is the tax payable on property or land over a certain price across the UK. It’s known as Land and Buildings Transaction Tax (LBTT) in Scotland and Wales.
According to AES, the average price of a house in the UK is £250,772, meaning most people across the UK will be paying stamp duty.
In the England and Northern Ireland, from the 1 October 2021 the SDLT thresholds will be:
- £125,000 for residential properties
- £150,000 for non-residential land and properties
In Scotland for properties and land over £145,001, you will need to pay between 1% and 12 % depending on the type of land and its price.
In Wales LBTT will need to be paid on properties and land over £180,000
First time buyers have a different rate too.
Money Saving Expert have a free calculator to help you figure out how much your stamp duty should be.
Another potential annual fee is the property owner’s association fees. If you purchased land in a community with an association, these fees might also be a few hundred or a few thousand pounds a year, depending on the type of community, the services they provide and what amenities are available.
Council tax has to be paid for all land in the UK. There are eight bands that all land and properties are categorised into. Council tax is used to pay for local services – things like local policing, rubbish collection, road repairs, street light maintenance, social housing, care for the elderly, the vulnerable and children, street cleaning, local buses, etc. You could be eligible for a discount depending on your circumstances – more info can be found on the Gov.uk website.
Owning vacant land is a nice investment asset, but it has fewer tax benefits than owning a single-family home or a commercial property.
If you don’t have anything on your land to collect rent from, and you’re just paying taxes and other costs, it will mean you have a negative cash flow on your vacant land.
You might be able to recoup some of those annual tax fees by using your vacant lot as an extra rental space. However, you might want to consider purchasing property owner’s insurance if you do something like this. It will mean you’re better protected from a lawsuit if something happens to someone while moving or occupying your vacant land.
Owning vacant land can also become costly to maintain.
If your property has grass and trees you may want to keep these neat and tidy. If your vacant land isn’t in the best of areas, fly tipping might occur on the property, which could be costly to have it removed. It may cause you to have code violations that cost you more money.
If you discover there are unknown contaminants or toxic issues on your land these might also be very costly to clean up.
If you buy your property while the market value is high and hold onto it for a long time, the value could severely decrease more than you expect, leaving you at a loss. And could make owning vacant land in the UK for too long a big mistake for you.But owning vacant land can also be a good thing too.
If you’re not sure whether it’s beneficial to hold on to your vacant land and would like to discuss your options – get a valuation or talk about selling – get in touch with SM Land Buyers now.
We have offices in the West Midlands and the North East making us perfectly placed to help with any land queries or sales across the UK. It’s our goal to provide you a beneficial solution to sell your land, all on your terms so get in touch today.