0.1 Property Taxes - Interaction

Question 1

What does general tax payable on a property depends on?

Answer 1

1. Client = buyer / seller
2. Property = residential / commercial (OR mixed)

Question 2

What is the MAIN interaction between VAT and SDLT?

Answer 2

IF VAT is charged pre-completion, SDLT/LTT is payable on the VAT-inclusive sum of chargeable consideration.

Question 3

Taxes on residential property

Answer 3

1. When buyer purchases residential property MAY have to pay SDLT / LTT (see reliefs)
2. When seller makes a capital gain by selling property for MORE than purchase price, they probably WON’T have to pay CGT on the gain
   a. IF they used property as only / main residence

Question 4

Taxes on commercial property

Answer 4

1. When buyer of commercial property (eg. office block) purchases =
   a. MUST pay SDLT/LTT (diff rates to residential and NO concessions for first-time buyers)
   b. AND MAY pay VAT
2. IF commercial property IF owned by company, Corporation Tax is paid on:
   a. Rent (commercial landlord)
   b. Ay capital gain IF property is sold for MORE than purchase price

n.b. companies pay Corporation Tax on income AND capital profits
- NOT income tax / CGT

Question 5

Example:
Yesterday a landlord granted a lease of office premises in England to a tenant for a term of 10 years. The consideration for the lease s the payment of a commercial, open- market rent with a premium of £100,000. The landlord opted to tax the property for VAT purposes before lease was granted.
- Describe the taxation position for this transaction

Answer 5

Tenant MAY need to pay SDLT on the VAT-inclusive amount of the rent
- WON’T need to pay SDLT for the premium

WHY?
- On the grant of a lease, SDLT is potentially payable BOTH on any premium charged by the landlord and rent reserved by the lease (NPV).
- LL opted in t VAT, SO SDLT is charged on the VAT- inclusive amounts:

OG premium = £100,000
SO VAT- inclusive premium = £120,000
- = SO SDLT will NOT be charged on VAT-inclusive premium (applicable rate for consideration NOT exceeding £150,000 = 0%).

BUT MAY have to pay VAT-inclusive amount for the rent NPV.