Tax for PLP

Question 1

When is CGT payable?

Answer 1

When there is a chargeable disposal, of a chargeable asset, by a chargeable person, which gives rise to a chargeable gain

Question 2

Chargeable disposals

Answer 2

• sale of an asset
• lifetime gift of an asset

A gift on death is not a chargeable disposal

Question 3

Chargeable asset

Answer 3

All property assets (land) are chargeable assets
- except the main home where and insofar as it qualifies for Private Residence Relief

Question 4

Private residence relief conditions

Answer 4

• A person does not pay CGT if they sell or dispose of their home

Provided these conditions are met:
- main home for all the time they lived in it
- has not been used for business purposes
- has not been let out
- grounds including all buildings are less than 5,000 square metres

If any of these conditions are not met, PRR may be refused or not available

Married couples can only treat one property as main home

Question 5

Capital losses and annual exemption

Answer 5

• if taxpayer has made losses on asset during the tax year, they can offset these against gains made
• Annual exemption of £3,000 (for individuals)

Question 6

What is the position regarding CGT for a land which comprises an area of 1 hectare (10,000 square metres)

• over statutory limit

Answer 6

One half of the gain will be exempt because it relates to the area of land within the statutory limit (5,000m); the remainder will not be exempt

• provided the other conditions are met

Question 7

Is private residence exemption available for a buy-to-let property?

Answer 7

No - there will be CGT payable as the exemption does not apply to a buy-to-let property which has not been used by the seller as their residence

Question 8

What is deemed date of disposal for CGT purposes for a commercial transaction?

Answer 8

The date of exchange of contracts

Question 9

What are SDLT rates on residential transactions?

Answer 9

• up to £250,000 = no SDLT payable
• over £250,000 - £925,000 = SDLT of 5%
• Over £925k - £1.5m = SDLT of 10%
• Over £1.5m - SDLT of 12%

Question 10

SDLT rates on residential transactions first time buyers

Answer 10

A discount is applicable provided the purchase price is no more than £625,000

• No SDLT for first £425k and 5% on remaining

If more than one is purchasing the property, they must all be first time buyers
- If not - first-time buyer’s relief is not available

Question 11

Purchase of a second home - residential transactions

Answer 11

Additional SDLT 3% is charged on whole of the purchase price

Question 12

SDLT on non-residential transactions

Answer 12

• Up to £150k = no SDLT
• £150k - £250k = 2%
• Over £250k = 5%

Question 13

VAT and the contract

Answer 13

SCPC VAT default position is that standard rated supply is included
- 20%
- SCPC 2 - VAT is applied
- This can be disapplied under special conditions

Question 14

What properties are exempt for VAT?

Answer 14

• Residential properties (except newly constructed residential properties)
• Commercial properties over 3 years old, and the owner has NOT opted to tax

Question 15

What properties are zero-rated supplies

Answer 15

Newly constructed residential property

• The buyer does NOT pay VAT
• It is zero-rated as this allows the seller to off-set VAT
• The seller does not charge VAT on sale price, but can recover VAT incurred in constructing the property

Question 16

What properties are standard-rated supplies (20%)?

Answer 16

1. Newly constructed commercial property (less than 3 years old)
   - default position is that the purchase price is VAT inclusive, unless the contract states otherwise
   - this means the seller must expressly state in sale contract that the purchase price is exclusive of VAT
   - Check in Heads of Terms if purchase price is VAT exclusive
2. Older commercial property where seller has included the option to tax
   - Seller opts to tax property - subsequent sale is standard rated and tenants also have to pay VAT

Question 17

What to look out for to know VAT position in question/scenario?

Answer 17

1. Residential / commercial
2. What is the age of the property
   - If told it is a newly constructed commercial property (less than 3 years old) = standard rated supply (even if not told about tax)
3. Have you been told that there is an option to tax
   - Relevant for old commercial property
4. What do the Heads of Terms specify the purchase price as?
   - Exclusive of VAT = need to add words ‘plus VAT of [insert the amount of VAT payable] after the purchase price (as the purchase price is exclusive of VAT)

Question 18

What is a transfer of Going Concern?

Answer 18

If the property is used for the business of letting to produce a rental income and the buyer will do the same
- VAT not charged

Question 19

Where is the option to tax included (older commercial property)?

Answer 19

Enquiry 28.3 CPSE 1 asks the seller whether an option to tax has been made

Question 20

SCPC and VAT

Answer 20

Condition 2 - default that property is standard rated
- new commercial property
- old commercial property with option to tax

Special condition 9
- Tick box A1 - tick this for properties which are exempt (e.g., old commercial property and seller has opted NOT to tax)
- Tick box A2 - tick this if TOGC

Question 21

Why might a seller choose to opt to tax?

Answer 21

If a supply is an exempt supply, the seller cannot recover VAT

Whereas, if a seller of an old commercial property opts to tax:
- Offset VAT
- Sale is standard rated
- Tenants pay VAT on rent