12.2 Taxation - Property

Question 1

What is Stamp Duty Tax within property law?

Answer 1

A tax paid on a property or land purchase over a certain price in England and Northern Ireland (freehold or leasehold property).`

Question 2

When must the buyer notify HMRC with stamp duty tax?

Answer 2

HMRC must be notified of transactions the value of which is £40,000 or over (form SDLT1).

Question 3

When does 0% stamp duty apply for residential properties?

Answer 3

Property / Lease Premium or Transfer Value should be less than £250,000

Question 4

When does 5% stamp duty apply for residential properties?

Answer 4

Property / Lease Premium or Transfer Value portion from £250,001 to £925,000

Question 5

When does 10% stamp duty apply for residential properties?

Answer 5

Property / Lease Premium or Transfer Value portion from £925,001 to £1.5 million

Question 6

When does a stamp duty over 10% apply for residential properties?

Answer 6

Property / Lease Premium or Transfer Value portion over £1.5 million

Question 7

When does 0% stamp duty apply for commercial properties?

Answer 7

Property / Lease Premium or Transfer Value portion up to £150,000

Question 8

When does 2% stamp duty apply for commercial properties?

Answer 8

Property / Lease Premium or Transfer Value portion for the next £100,000 (from £150,001 to £250,000)

Question 9

When does 5% stamp duty apply for commercial properties?

Answer 9

Property / Lease Premium or Transfer Value portion above £250,000

Question 10

What is the stamp duty policy for first time buyers?

Answer 10

If a buyer is purchasing their first home to be used as their main residence, they pay no SDLT if the price is £425,000 or less. There is no first-time buyer exception if the property costs more than £425,000.

Question 11

What is the stamp duty policy for additional properties?

Answer 11

Additional element of SDLT will need to be paid for additional properties.

HRAD: 3% additional rate - applies when the buyer (individual, not a company) owns in their own name or jointly any other residential property anywhere in the world, not only the UK.

Question 12

What is the stamp duty policy for the grant of a new lease?

Answer 12

Additional element of SDLT is needed here. SDLT is calculated on the premium (purchase price) as well as additional tax - calculated by reference to the rent payable under the lease (net present value). Applies whether lease is for commercial premises or residential property.

Question 13

What is the time limit for buyers paying stamp duty to HMRC?

Answer 13

Within 14 days of completion of the purchase

Buyer must pay any tax due to HMRC within 14 days of completion.

Question 14

What is Value Added Tax (VAT)?

Answer 14

A tax based on the value of goods or services and is charged when a VAT registered business sells goods or services to another business or to a non-business customer. *Relevant to commercial property transactions.

Question 15

When must a business register with HMRC for VAT?

Answer 15

If a business will make more than £85,000 worth of taxable supplies in the tax year, it must register with HMRC for VAT and charge VAT on its goods and services.

Question 16

What is the rate of VAT?

Answer 16

VAT is taxed at a standard rate of 20%.

Question 17

Can VAT be reclaimed?

Answer 17

Yes. A business registered for VAT can reclaim any VAT paid on business-related goods and services (input tax).

Question 18

What is the VAT policy for commercial properties older than 3 years? Is there an exception to this?

Answer 18

VAT is not payable on a commercial property older than 3 years. However, a seller of a commercial property can exercise the “option to tax” and charge VAT on the purchase price. Similar for a landlord charging VAT on the rental payments.

Question 19

What is Capital Gains Tax (CGT)?

Answer 19

A tax payable on the profit made when the owner sells an asset that has increased in value.

N.B: It is only the GAIN that is taxed, not the amount of money received for the asset.

Question 20

What is the time limit for paying CGT to HMRC?

Answer 20

Within 60 days of the sale.

Seller must report and pay to HMRC any CGT due on UK residential property within 60 days of selling it.

Question 21

What is private residence relief and how is it applicable to CGT?

Answer 21

Seller is not liable to pay CGT in residential conveyancing transactions if they have used the property being sold as their home, even if the property has substantially increased in value.