Tax Flashcards
Explain how VAT works - what is the basis of charge?/ who is a taxable person
VAT is a tax on taxable supplies - these are goods and services provided by a ‘taxable person’ in the course or furtherance of business
A taxable person is someone whose turnover over the past 12 months has exceeded the registration limit
What is a taxable supply in property transactions?
- Old commercial properties (its been over 3 years since completion of the building) = exempt but option to tax
- New commercial building = within 3 years of completion of the building = standard rated (attract VAT at 20%)
- Sale of a new freehold building = zero rated (so buyer doesn’t pay VAT)
What types of property are exempt with the option to tax? (VAT)
- Sale of a greenfield site
- Sale of an old freehold building
- The grant of a lease
Who pays cgt and what is taxable?
THE SELLER
CGT is charged on the gains made on ‘chargeable assets’ includes:
1. Freehold and leasehold property
2. The interests of co-owners if property is owned jointly
3. Transactions that are incidental to the sale of land (e.g. where a seperate payment is made for the release or modification of an easement or covenant)
4. Gifts
How is CGT calculated
- Sale price - Purchase price
- Deduct annual exemption for individuals
- check if any relief available
What reliefs available for CGT?
Private residential relief available to:
- Seller of a residential property - if:
a. Its the sale of an individuals dwelling house
b. used as their only or main residence (was in occupation)
c. throughout the period of ownership.
If you have more than 1 residence then you can choose which one will qualify for PRR
- Trustees - if the property is being a. occupied by the beneficiary
b. as their principle residence
Periods of absence impacting PRR?
Certain periods of absence are allowed - e.g. if an owner is an employee and has to live abroad or in service accom for job. but there are specific conditions for this to be disregarded
The garden rule for CGT
If a seller has a garden of more than 0.5 hectares - the gain on the excess is chargeable to CGT.
UNLESS seller can demonstrate to HMRC that the extra garden is necessary for reasonable enjoyment of the house
When can PRR be lost?
On any part of the house that is used exclusively for business
VAT in the contract - what are the 3 options in respect of purchase price and VAT
- The purchase price is EXCLUSIVE of VAT (and VAT will be added on top) - SPCP2 commercial
- The purchase price is inclusive of VAT (so VAT cannot be added on top)
- The puchase price is EXCLUSIVE of VAT - so VAT can be added on top if the law changes between the exchange of contracts and completion (to make an exempt supply chargeable at the standard rate)
When is option 1 - purchase price exclusive of VAT and vat will be added on top appropriate? (2 situations)
- For new commercial building (standard rated supply of commercial building) where VAT is compulsory for the seller
- Old commercial building seller. Because the seller either:
a. wants to recover input tax paid on refurbishment and/or professional costs; and
b. the buyer is NOT VAT SENSITIVE
When is option 2 appropriate? (Purchase price is inclusive of VAT - so vat is not paid on top)
- The seller of an old commercial building AND doesn’t have any input tax to recover (hasn’t done any refurbishments)
- Buyer is VAT sensitive - who can’t recover VAT paid on purchase price
Risk of L for seller: If the law changes and a supply of land that used to be exempt becomes standard rated = seller will have to take the vat out of the agreed purchase price
Who is option 3 for VAT appropriate for? Purchase price is EXCLUSIVE of VAT subject to change in the law but seller is contractually obliged not to opt to tax
Which seller?
Advantage for seller?
Effect on buyer?
Seller of an old commercial building with no input tax to recover, so has not opted to tax AND risk averse to change in law.
Adv = protection for seller of the law changes between exchange of contract and completion seller will not have to take L on VAT
What it means for buyer = buyer will not be liable to pay VAT in addition to £PP unless the VAT status of the transaction changes between exchange & completion - then B will have to pay VAT on top of £PP
Who pays Stamp duty? SDLT
BUYER - of commercial & residential
SDLT may be payable on fixtures - so if the sale involves valuable chattels, its possible to save SDLT by apportionment of the £PP to the chattels
Who can claim relief from SDLT in residential transactions?
First time buyers of a residential property if you intend to occupy the property as your main residence and the purchase price is no more than 625k
