Taxation of property transactions through Stamp Duty Land Tax, Land Transaction Tax, Value Added Tax and Capital Gains Tax

Question 1

Private residence relief

Answer 1

CGT is rarely payable in the context of residential conveyancing due to PRR

Disposal (sale) of an individual’s private residence, including grounds of up to 0.5 hectares, is exempt from CGT

Question 2

What happens if the land is over the 0.5 hectare limit

Answer 2

if the grounds exceed half a hectare (5,000 square metres or 1.235 acres) there could be a tax liability on the excess, unless the excess is proved to be necessary for the reasonable enjoyment of the house

Question 3

What is another factor to consider for private residence relief

Answer 3

If the client owns another house. Married couples are only entitled to one PRR exemption.

If a married couple own more than one house, they should elect the house which is to take the benefit of the exemption
- the election is revocable if they wish to change their minds

Also check if the clien’ts house was not originally purchased in the name of a company - PRR will not apply

Question 4

How should you advise buyers on CGT?

Answer 4

A client who is intending to buy a property that will not qualify for PRR should be advised of any potential liability for CGT on a subsequent disposal

Question 5

What is stamp duty land tax?

Answer 5

Where the price for the property exceeds a certain threshold figure (currently £250,000 for residential properties and £150,000 for non-residential and mixed-use properties), the buyer is required to pay a government tax known as stamp duty land tax (SDLT).

In Wales, it is simply known as land transaction tax (LTT).

Before 4 December 2014, SDLT was charged at a single rate for the entire price of the property. Since 4 December 2014, SDLT is charged at increasing rates for each part of the price.

Question 6

How much SDLT will a purchaser pay on residential properties?

Answer 6

zero on the first £250,000;

5 per cent on the next £675,000;

10 per cent on the next £575,000;

12 per cent on the rest (above £1.5 million).

Question 7

Example of a SDLT on a purchase of residential property

Answer 7

If a purchaser who is not a first-time buyer (see later) buys a residential property for £325,000, they will pay SDLT of £3,750. This is calculated as follows:

zero on the first £250,000;
£3,750 (5 per cent) on the remaining £75,000

Question 8

How much SDLT will a buyer pay for a non residential property?

Answer 8

For non-residential and mixed-use properties, the purchaser pays the following rates of SDLT:

property price, premium or value up to £150,000
(annual rent no greater than £1,000) = zero

properties between £150,001 and £250,000 = 2%

properties over £250,000 = 5%

Question 9

SDLT and additional property

Answer 9

Since 1 April 2016, there has been a 3 per cent SDLT surcharge when an additional residential property in England, Wales or Northern Ireland is bought by someone who already owns a home; that is second homes and ‘buy to let’ properties.

The higher rates are 3 per cent above the current SDLT residential rates.

They are charged on the portion of the value of the property that falls into each band

Question 10

Additional property SDLT rates

Answer 10

£0–£250,000 = 3%

£250,000–£925,000 = 8%

£925,000–£1.5 million = 13%

£1.5 million and above = 15%

Question 11

How long would someone have to dispose of their first house before having to pay SDLT on a second property?

Answer 11

if a purchaser buys an additional dwelling before selling their main dwelling, they will have 36 months after buying the new property in which to dispose of their previous main residence and claim a repayment of the 3 per cent SDLT surcharge.

Question 12

SDLT and first time buyers

Answer 12

To assist people moving home, if a purchaser buys an additional dwelling before selling their main dwelling, they will have 36 months after buying the new property in which to dispose of their previous main residence and claim a repayment of the 3 per cent SDLT surcharge.

Question 13

SDLT and non-UK residents buying residential property

Answer 13

Pay 2% surcharge on top of any stamp duty already chargeable

Question 14

What advice would you give a client where the price is just over the threshold for SDLT?

Answer 14

You should consider apportioning the price between the land and any contents included in the sale (eg carpets and curtains). This could reduce the price for the land below the threshold and thus reduce or avoid SDLT altogether.

However, you should take care that the price for the contents is a proper reflection of their value. Any overvaluation in these circumstances may constitute a fraud against HM Revenue and Customs (by both you and the client), and could also make the contract for sale unenforceable by action (see Saunders v Edwards [1987] 1 WLR 1116).

You will also be in breach of the Principles in the SRA Standards and Regulations, namely acting with integrity and behaving in a way that maintains the trust the public places in you.

Question 15

Guidance on chattels where apportionment is allowable

Answer 15

chattels: carpets, curtains, light shades, pot plants, free-standing kitchen white goods and portable electric or gas fires;

Question 16

Guidance on fixtures where apportionment is not allowable

Answer 16

fixtures: fitted bathroom sanitary ware, central heating systems, plants growing in the soil and gas fires connected to a piped gas supply.

Question 17

When is the deemed date of disposal for CGT purposes

Answer 17

Exchange of contracts (when the beneficial interest passes to the buyer)