Stamp Tax + Special VAT Rules

Question 1

Special VAT rules - property transactions

Answer 1

General rule- sale or lease of land is exempt supply

However this is automatically overridden in certain scenarios and can be changed by opting to tax commercial buildings

Land and buildings

1) sale/construction of new RESIDENTIAL building = 0 rated, builder can recover input VAT incurred on costs to build
2) sale/construction New COMMERCIAL buildings (<3 years old)= 20% std rate, purchaser can recover input VAT if building will be used for taxable supplies
3) any other sale or lease = EXEMPT, commercial building has option to tax, charge vat on later sale or rent

Question 2

Option to tax

Answer 2

Permanent election- 6 months cool off, revocable after 20 years

Charge standard rate VAT on all future supplies of commercial property

Per building basis

Advantage - vendor/landlord can reclaim input tax on original cost and ongoing expenses in connection with property

Disadvantage - if tenant not VAT registered they will not be able to recover the VAT

Exam scenarios - new commercial or old commercial building with option to tax.

Landlord pays 20% vat, rents out building - if doesn’t opt to tax can’t reclaim 20% VAT

If he does claim he can reclaim VAT- charges tenant 20% VAT, if tenants trade is taxable (eg accounting) they can reclaim the input, if not taxable (eg insurance) they can’t

Question 3

Capital goods scheme

Answer 3

Applies to :

Single computer costing more than or equal to 50k exclusive of VAT

L+B costing more than 250k or more, exc vat

Aircraft, ships, boats and other vessels costing 50k or more, exc vat

1) In the year of purchase :

• Wholly taxable business - 100% recoverable
• Partially exempt - taxable % recoverable
• Wholly exempt business - no input tax recoverable

2) year 2- annual adjustment per VAT year

Capital goods scheme applies for:
A) 10 years for land and buildings
B) 5 years for computer hardware, aircraft, ships, boats and other vessels

No adjustment needed where there have been no changes in use since acquisition (easy mark)

If I’m any VAT year there has been
A) more taxable use - recover more input from vat
B) less taxable use - repay some input VAT to HMRC

Annual adjustment :

(Total input VAT/ 10 or 5 intervals) x taxable % useage now (yr of change) - original taxable % usage (year 1)

Question 4

Capital goods

Adjustments on sale

Answer 4

In VAT year of sale there are two adjustments to be calculated

A) annual adjustment for the year of sale as per previous

B) a sale adjustment for all remaining years in the adjustment period

Sale adjustment

A)If vat is charged on the sale - taxable usage is 100% for the remaining period

B) if no VAT charged - taxable usage is 0% for remaining period

Question 5

Flat rate scheme- limited cost traders

Answer 5

Allows registered trader to calculate VAT liability by applying a flat rate % to their VAT INCLUSIVE turnover…rather than calculating output and input separately - the FR% depends on type of business

Scheme open to traders with taxable supplies not exceeding £150k - designed to reduce admin burden on small companies

If businesses total annual income (inclusive of vat and exempt supplies) over 230k they must leave scheme

Limited cost traders if:
Amount they spend (inc vat) on relevant goods is either:

Less than 2% of VAT inclusive turnover; or

Greater than 2% of VAT inclusive turnover BUT less than £1000 per year (£250 per quarter)

Relevant goods = used exclusively in business (stock, stationary, office supplies, gas and electricity) but do not include services or capital expenditure

A limited cost trader which has joined the FRS must use the fixed rate of 16.5% regardless of its business sector

Question 6

Overseas aspects VAT

Answer 6

Supply of goods:

Exports - automatically zero rated (no matter customer)

Imports = paid directly to HMRC on goods purchased(point of entry) .Recoverable next tax return

From jan 2021 postponed accounting is available - importers are able to declare imports on next VAT return rather than point of entry

Supply of services to overseas :

-B2B based on customer location (not uk taxable), B2C Based on supplier location (UK taxable)

Supply of services from overseas

-UK VAT registered trader accounts for output VAT on receipt of service (B2B based on customer location) - treated as input VAT- VAT neutral

Question 7

Stamp duty

Answer 7

Payable on paper based transfer of shares

Purchaser pays 0.5% of consideration - ROUNDED UP to nearest £5

No duty charged if consideration £1000 or less

Certain transactions are exempt - eg gifts, on divorce and variation of wills

Group relief also available so there’s no stamp duty on intra group transfer of shares

Group for this purpose = 75% interest in share capital, dividends or entitlement to assets on winding up

Ownership must be by a company (two companies owned by same individual does not make a group

Question 8

Due stamp duty

Answer 8

Duty and relevant forms due within 30 days of transaction

Question 9

Stamp duty reserve tax

Answer 9

Applied to Paperless agreements (without instrument of transfer)

Purchaser pays 0.5% of consideration with NO rounding

Collected automatically through a broker

Payable 7th day of the month following the month in which the sale is agreed

If deal made by CREST then SDRT is due 14 calendar days after the trade date.- charge is unrelated to completion or settlement so SDRT could be due before transaction is carried out

If completed both electronically and on paper the charge to stamp duty will cancel the SDRT which will be repaid

Question 10

Stamp duty land

Answer 10

Chargeable on land transactions

Transfer of free hold / assignment of lease = consideration paid

SDLT payable by purchaser

Due within 14 days of the transaction (30 days prior to March 1 2019)

Question 11

Stamp duty land tax rates on transfer / lease

Answer 11

Residential

Up to 125,000 = 0%

125,001-250,000 = 2

250,001 -925,000 = 5%

925,001 - 1,500,000 = 10%

1,500,000 + = 12%

Non residential

Up to 150,000 = 0%

150,001-250,000 = 2%

250,001 + = 5%

Applied in bands like NIC

If buyer already owns residential property +3% (unless consideration is under £40,000, or new property replaces only or main residence)

Transactions after 22nd November 2017- relief from standard residential rates for first time buyers purchasing main or only residence :

0% up to 300k
5% remainder (maximum total cost of property 500k)

If property exceeds 500k normal rates apply to full cost

Question 12

SDLT on rent

Answer 12

Stamp duty charged on NPV of rental

Residential :

Up to 125,000 = 0%
Excess over 125k = 1%

Non residential :
Up to 150,00 = 0%
150,001 - 5,000,000= 1%
Excess over 5,000,000= 2%

Question 13

Exemptions from SDLT and group relief

Answer 13

Exemptions

Transfers for no chargeable consideration (gifts)

Transfers on divorce

Transfers on a variation of will

Note : where responsibility of debt assumed by purchaser (mortgage) the value of the debt is treated as consideration and not an outright gift

Group relief :

Transfers of land between 75% group companies are exempt from SDLT, however relief will be denied if :

• at the time of the transfer, arrangements exist for the two companies to cease to be members of the same group, or
• transaction is not for like Bona fide (genuine) commercial reasons; or
• the main purpose of the transaction is tax avoidance