Chapter 7 – Indirect Taxes (1 OR 2 MARKS)

Question 1

There are two ways that individuals may have to pay forms of Stamp Duty. What are they?

Answer 1

Purchasing property or land:
may be liable for Stamp Duty Land Tax

Purchasing certain shares:
will be liable for Stamp Duty or Stamp Duty Reserve Tax

Question 2

When is SDLT payable?

Answer 2

It is due on the individual who purchases the land

It must be paid within 14 days of the ‘effective date of the transaction (normally the completion date)

As it is payable on land, it is not due on removable items such as domestic appliances, furniture etc that may be offered as extras when purchasing a property.

Question 3

In relation to SDLT:

Answer 3

Any second home or buy-to-let purchased for £40,000 or more is liable to pay an extra 3% SDLT on top of the usual rates

A 2% surcharge applies for non-UK residents purchasing residential property for over £40,000 in England & Northern Ireland.

Question 4

If 2 property owners exchange homes is SDLT payable?

Answer 4

If property owners exchange houses, SDLT is not avoided.

Both individuals are liable to SDLT based on the market value of the property acquired:

Question 5

Is SDLT payable if a couple divorce and the one of the individuals give the property to the other?

Answer 5

SDLT is not payable where one party of the marriage buys from the other due to divorce

Question 6

Any first-time buyer acquiring a house with a purchase price in excess of £625,000 will not qualify for the first-time buyer rates. The rates for first time buyers in England and Northern Ireland are:

TREUE OR FALSE

Answer 6

True

Question 7

An anti-avoidance rate of 15% is charged where companies and collective investment schemes buy residential property with a value over £500,000.

True or false

Answer 7

TRUE This is also on your tax table. It is not tiered.

Question 8

No SDLT is charged on leases where the Net Present Value (NPV) does not exceed the £250,000 residential threshold or the £150,000 commercial property threshold.

NPV is effectively the amount of rent paid over the period of the lease, which is why the concept of paying SDLT is not high on most people’s radar; for most rental tenants, no SDLT is due.

Where it is due, it is at 1% on the rental excess (amount over the threshold) for residential leases and at a rate of 1% on the rental excess up to £5m and then 2% thereafter for commercial leases.

Answer 8

Example 7.1

Andy is renting a residential property in Chelsea for £4,500 per month and has a lease for 5 years.

Ignoring any inflation adjustments, calculate the Stamp Duty Land Tax that Andy will need to pay.

£4,500 x 12 months x 5 years = £270,000 NPV
270,000 - £250,000 = £20,000 rental excess
£20,000 x 1% = £200 Stamp Duty Land Tax due

for residential property its 0% up to 250000 and then 1% on anything over

Question 9

No stamp duty reserve tac or stamp duty is payable on purchase of AIM shares, exchange traded funds, unit trusts and OEICs.

True or false

Answer 9

True

Because HMRC want to encourage investment in AIM shares

Question 10

Stamp duty is rounded to nearest £5 (STOCK TRANSFER FORMS)

Stamp duty reserve tax is rounded to nearest penny (CREST)

Same rate of 0.5% is payable

Does this apply if the value of purchase is is less than £1000?

IT IS ONLY PAYABLE ON PURCHASES OF SHARES . READ QUESTION INCASE IT SAYS SALE TOO!

Answer 10

Transactions of less than £1,000 using stock transfer forms are exempt from Stamp Duty. This exemption DOES NOT apply to SDRT using CREST

Question 11

purchases OF SHARES OVER £10000 ARE SUBJECT TO THE PTM (Panel on Takeovers and Mergers) Levy of £1

Question 12

Stamp Duty and SDRT costs can be included in the ‘costs of acquisition’ that can help reduce a potential CGT liability as seen in chapter 3

Question 13

What is VAT?

Answer 13

Value Added Tax

VAT is a tax on the value of most goods made and services supplied in the UK.

It is an indirect tax, because any tax collected is paid to the government by the seller (the business) rather than the person who pays the tax (the purchaser).

In effect, the purchaser pays the VAT to their seller, who then sends what is due to HMRC after allowing for VAT that they themselves have paid.

The business is really just acting as a tax-collector. They account for the VAT to HMRC by completing quarterly VAT returns.

Question 14

Goods and services that carry a VAT charge are known as WHAT ‘

There are currently three rates of VAT:
0% (0 rated - similar to IHT nil rate band where IHT is 0 rated in this band)
5% (reduced rate)
20% (main rate)

In addition to these three rates, some supplies are exempt from VAT; this is a different category from those which are zero-rated.

Answer 14

‘taxable supplies’

Question 15

Traders must register for VAT if they make taxable supplies above a set limit of the value of taxable supplies made in the previous 12 months. The limit is currently £90,000. Once registered, the de-registration limit is £88,000. (These rates are in the tax tables).

Answer 15

The trader has 30 days from the end of the month the limit was exceeded to notify HMRC

Question 16

What is the difference between input VAT and output VAT?

Answer 16

look at 7.2. Important to know

Question 17

some purchases involving input VAT cannot be reclaimed, for example:

Motor cars (unless purchased wholly for business purposes)
Most business entertainment expenses

Question 18

7.2.1: Examples of different supplies

This has examples of different supplies and the respective VAT rate that it is subject to

Question 19

What is the Flat Rate Scheme?

Question 20

Goods sold within the UK are either exempt, zero-rated or chargeable to VAT
Business must register for VAT once their turnover reaches a limit that is set annually
There are two main schemes for VAT, the main scheme and the simplified flat rate scheme
The main scheme involves paying on excess output VAT over input VAT to HMRC, often done quarterly
The flat rate scheme is for smaller businesses and can be beneficial to those whose input VAT is minimal when compared to their output VAT

Question 21

In October 2024 Sasha, a first-time buyer, paid a total of £430,000 for a residential property in York. The purchase price of the property was £410,000, and Sasha also bought £20,000 worth of furniture from the vendors. How much, if any, stamp duty land tax (SDLT) will Sasha have to pay?

£0

£250

£8,000

£9,000

Answer 21

£0

As a first-time buyer in England, Sasha will not be subject to the SDLT regime on a home purchased for up to £425,000. As long as the cost of the furniture is reasonable, it will not be included as part of the SDLT calculation.

Question 22

Seb has purchased some shares through his stockbroker. The consideration paid for the shares is £5,200. What stamp duty reserve tax will be paid in respect of this transaction?

£30

£26

£25

£0

Answer 22

SDRT indicates a paperless transaction. The tax is based on 0.5% of the consideration, and is rounded to the nearest penny. £5,200 x 0.5% = £26. Incidentally, if Stamp Duty had been due instead of SDRT the tax due would have been rounded up to £30.

Consideration refers to the payment or compensation in exchange for the shares. ie, the money paid for the shares (ties in to contract law)

Question 23

BTS Limited has recently made a business decision to pay their VAT via the flat-rate scheme. This is most likely to be because

they regularly receive refunds of VAT

they do not pay much input VAT in relation to their output VAT

they have an annual taxable turnover of over £100,000

they employ fewer than 5 employees

Answer 23

they do not pay much input VAT in relation to their output VAT

The flat-rate scheme can help simplify the VAT arrangements of firms who do not regularly receive refunds of VAT (i.e. they are more likely to charge more output VAT than they can offset against input VAT). The maximum turnover is £150,000 per annum, but this is unlikely to be a driver as whether to join the scheme or not, just an eligibility factor.

Question 24

The rules about registering for VAT are that:

registration is not possible if the value of taxable supplies is lower than a prescribed amount

registration is optional once the value of taxable supplies reaches a prescribed amount

registration is mandatory once the value of taxable supplies reaches a prescribed amount, but is optional if the value of taxable supplies is lower

registration is mandatory once the value of taxable supplies reaches a prescribed amount, and is only optional if the value of taxable supplies subsequently falls below this amount

Answer 24

registration is mandatory once the value of taxable supplies reaches a prescribed amount, but is optional if the value of taxable supplies is lower

The prescribed amount is currently £90,000, but even if the value of a trader’s taxable supplies falls below this amount they can register for VAT based on a business decision.