Property Taxation Flashcards
(21 cards)
In England, what is the basis of charge (SDLT) for residential property?
Up to £250,000 Zero
The next £675,000 (the portion from
£250,001 to £925,000) 5%
The next £575,000 (the portion from
£925,001 to £1.5m) 10%
The remaining amount
(the portion above £1.5m) 12%
In England, what is the basis of charge (SDLT) for non- residential property?
Up to and including £150,000 Zero
The next £100,000 (the portion from
£150,001 to £250,000) 2%
The remaining amount
(the portion above £250,000) 5%
In Wales, what is the basis of charge (LTT) for residential property?
Up to and including £225,000 0%
The portion over £225,000 up to
and including £400,000 6%
The portion over £400,000 up to
and including £750,000 7.5%
The portion over £750,000 up to
and including £1,500,000 10%
The portion over £1,500,000 12%
In Wales, what is the basis of charge (LTT) for non-residential property?
Up to and including £225,000 0%
The portion over £225,000
up to and including £250,000 1%
The portion over £250,000
up to and including £1,000,000 5%
The portion over £1,000,000 6%
How is SDLT determined?
- Price of property
- Type of property (commercial, residential)
- Whether buyer is a first-time buyer
- Whether purchase will result in buyer owning 2 or more properties
What is the procedure when crossing the minimum threshold for SDLT notification?
Minimum threshold for SDLT notification: £40,000
SDLT1: Form to inform HMRC about transactions which fall on or over the current minimum threshold for notification.
SDLT5: Form issued by HMRC after receiving SLDT. This form must be sent by the buyer’s solicitor to HMLR with the application for registration of the buyer’s title.
What are the exceptions to paying SDLT?
Exceptions for when SDLT is not necessary:
- Freehold property is bought for less than the current minimum threshold for notification;
- Transactions where no money or other type of payment changes hands;
- Property left in a will
- Property transferred because of divorce or dissolution of a civil partnership
How is SDLT determined on grant of a new lease?
SDLT on grant of new lease:
- SDLT is calculated on the premium
- Additional element is payable calculated by reference to the rent payable under the lease (net present value)
What is the procedure when crossing the minimum threshold for LTT notification?
Minimum threshold for LTT notification: £40,000
It is necessary to notify the WRA of transactions which fall on or over the minimum threshold for LTT notification.
If the transaction is notifiable, the WRA must be informed about the transaction by the submission of an LTT form. Once the LTT form is submitted, WRA will issue an LTT certificate, which must be sent by the buyer’s solicitor to HMLR with the application for registration of the buyer’s title.
What are the tax implications behind other property scenarios?
Other scenarios: first-time buyers, owning more than 1 property and higher residential rates of SDLT and LTT
SDLT
Relief for first-time buyers:
Applies for a person purchasing their first home to use as their main residence. Unless a buyer is selling and replacing their main residence, the purchase of a property in addition to a main residence will usually mean they will have to pay an additional element of SDLT
Higher rates of SDLT:
Payable when companies buy residential properties
LTT
No relief for first time buyers of property in Wales. However, there may be relief available if a person is buying more than one property (multiple dwellings), moving property around a group structure or if the purchaser is a charity.
Higher rates of LTT:
Payable when a company or a trust buys residential property
Explain the first time buyers relief for SDLT
The first-time buyer relief falls into 2 parts:
- If a buyer is purchasing their first home to be used as their main residence, they will pay no SDLT if the purchase price is £425,000 or less.
- If the purchase price is between £425,001 and £625,000, the first-time buyer will pay 5% on the portion of the purchase price between these figures.
If the purchase price for the first-time buyer is over £625,000, they cannot claim the relief and they must follow the rules above for people who have bought a home before.
Explain the higher rate of tax applicable for residential properties
Unless a buyer is selling and replacing their main residence, the purchase of a property in addition to a main residence will usually mean they will have to pay 3% on top of the SDLT rates if they will end up owning more than one property.
What are the deadlines for paying SDLT and LTT?
SDLT
Buyer’s solicitor must submit the SDLT return to HMRC and pay any SDLT due within 14 calendar days of completion of the purchase.
LTT
Buyer’s solicitor must submit the LTT return to the WRA and pay any LTT due within 30 calendar days of completion of the purchase.
What is VAT in the context of property transactions?
VAT is based on the value of goods and services and is charged at the prevailing VAT rate when a standard-rated supply is made by a VAT registered business.
VAT is only relevant to commercial property transactions. If VAT is payable on the purchase price, SDLT and LTT are paid on the total of the purchase price plus VAT
When is VAT a compulsory tax in property?
VAT - new commercial properties
VAT is a compulsory tax payable by the buyer on new commercial properties - properties that are sold within 3 years of construction
Explain the concept of the ‘option to tax’ in VAT? What are the advantages and disadvantages?
VAT - option to tax
VAT does not have to be applied to older properties, but the seller does have the option to tax on older properties at the standard rate.
It is essential for the buyer or tenant to establish whether the seller or landlord has exercised the option to tax. They might try to negotiate a reduction in the purchase price or rent as a consequence.
What are the advantages of the option to tax?
Advantages:
If a seller or landlord have VAT payments they want to recover, they can exercise the option to tax.
There is no adverse consequence to a buyer or tenant if they are registered for VAT because they can recover the tax paid on the purchase price or rent
What are the disadvantages of the option to tax?
Disadvantages:
If the buyer or tenant is not registered for VAT, they will not be able to recover the VAT charged by the seller or landlord. This will mean that the purchase price or rent is 20% - a significant extra cost to them.
What is CGT in the context of property transactions?
CGT is a tax payable on the profit made when the owner disposes of an asset that has increased in value. The tax is payable only on the gain made.
A taxpayer has to pay CGT only on their total gains in any tax year above an annual tax-free threshold, which is called the Annual Exempt Amount (AEA). A taxpayer does not usually pay CGT on gifts to their husband, wife, civil partner or a charity.
For the tax year 2024 to 2025 and subsequent tax years, the AEA will be permanently fixed at £3,000 for individuals
What is the deadline for paying CGT?
CGT - Tax deadline
If a seller sold residential property in the UK and CGT is due on the sale proceeds, they must report and pay the CGT to HMRC within 60 days of the completion date.
What is private residence relief in the context of CGTT?
CGT - Private residence relief
Most sellers of a residential property will not be liable to pay CGT due to the private residence relief
