Key elements and structure of a freehold property transaction

Question 1

Professional conduct issues in a property transaction

Answer 1

Acting for buyer and seller could result in a conflict of interest. However there is an exception which states that a solicitor can act where the parties have a substantially common interest in relation to the matter. However this does not apply to a property purchases but they can for borrower and lender.

Question 2

Sources of finance for a property transaction - What is the solicitor required to tell the client regarding cost?

Answer 2

Provide the client with the best possible information about the likely overall cost of their mater at the beginning and at appropriate points throughout the transaction. This has to be sent as a letter of engagement.

Question 3

Sources of finance for a property transaction - Types of mortgage - Repayment mortgages

Answer 3

Borrower will make monthly payments to the lender made up partly of instalments of the original amount borrowed and partly of interest chargeable on the loan. The advantage is that by the end of the mortgage term the borrower will have paid off everything they owe.

Question 4

Sources of finance for a property transaction - Types of mortgage - Interest-only mortgages

Answer 4

Make monthly payments to the lender but those payments will only comprise interest chargeable on the loan. Advantage is that the monthly repayments for an interest-only mortgage are likely to be lower than under a repayment mortgage

Question 5

Sources of finance for a property transaction - Certificate of title

Answer 5

Confirms to the lender that there are no legal problems with the property - it had a good and marketable title - so the lender can safely lend against it

Question 6

Property taxation - Residential property

Answer 6

Might have to pay stamp duty land tax or land transaction tax.

Question 7

Property taxation - Commercial property

Answer 7

Will pay stamp duty land tax or land transaction tax on the purchased although there are no special concessions for 1st time buyers and the rates are different. May have to pay VAT and if owned by a company they will have to pay corporation tax on income and capital profits

Question 8

Property taxation - Stamp duty land tax - Residential first time buyers

Answer 8

First time buyers of residential property for £500,000 or less can claim relief from Stamp duty land tax. They do not pay anything on purchases up to £300,000 and past 5% on the portion from £300,001 - £500,000

Question 9

Property taxation - Stamp duty land tax - Residential not first time buyers

Answer 9

1) So much as does not exceed £125,000 - 0%
2) So much as exceeds £125,000 but does not exceed £250,000 - 2%
3) So much as exceeds £250,000 but does not exceed £925,000 - 5%
4) As much as exceeds £925,000 but does not exceed £1.5 mill - 10%
5) The remainder - 12%

Question 10

Property taxation - Land transaction tax

Answer 10

There is no relief for first time residential buyers.
1) So much as does not exceed £180,000 - 0%
2) So much as exceeds £180,000 but does not exceed £250,000 - 3.5%
3) So much as exceeds £250,000 but does not exceed £400,000 - 5%
4) So much as exceeds £400,000 but does not exceed £750,000 - 7.5%
5) So much as exceeds £750,000 but does not exceed £1.5 mill - 10%
6) The remainder - 12%

Question 11

Property taxation - Capital gains tax

Answer 11

This is charged on gains made on ‘chargeable assets’. This includes freehold ad leasehold property and the interests of co-owners. The gain on a sale of property is calculated by deducting the purchase price of the property from its current sale price.

Question 12

Property taxation - Private residence relief

Answer 12

A seller of a residential property is likely to be able to claim the benefit of private residence relief if it is the sale of an individual’s dwelling house used as their only or main residence - they will not have to pay capital gains tax.

Question 13

Property taxation - VAT - Basis of charge

Answer 13

Usually seller/landlord has to pay. Only some commercial transactions

Question 14

Property taxation - VAT - Exemptions

Answer 14

1) All leases, assignments, surrenders, reverse surrenders or licenses to occupy any interest in land or buildings
2) Sales of freehold commercial property or civil engineering works more than 3 years old
3) Sales, leases or licenses of all residential or charitable property (zero rated)

Question 15

Property taxation - VAT - Why they’d opt for VAT

Answer 15

To gain the money back that they’d already paid on VAT

Question 16

Property taxation - VAT- Standard rate

Answer 16

VAT at this rate is applied to commercial property transactions where the property involved is new (less than 3 years old). 20%

Question 17

How to ensure a property is sold free from a mortgage

Answer 17

The contract should be checked to ensure that the mortgage is excluded from the list of incumbrances affecting the property. The seller’s solicitor should provide an undertaking to discharge the mortgage immediately on completion

Question 18

Restrictive covenant indemnity insurance

Answer 18

This is cover for a breach of a restrictive covenant, either known or unknown

Question 19

What if the seller gave an indemnity covenant

Answer 19

If a seller gave an indemnity covenant when they purchased the property they will require the buyer to give an equivalent indemnity covenant in the transfer of the property so that the buyer will be liable to the seller