Taking Instructions and Advising the Client Flashcards
The owner of a commercial property has just completed their sale of a buy to let property. The terms of the sale were originally agreed in February and contracts were exchanged in March. Completion took place in May and the transfer to the buyer was registered at HM Land Registry in June. The seller asks their solicitor to confirm the date of the disposal for capital gains tax (CGT) purposes.
Which one of the following statements best describes the deemed date of disposal for CGT purposes?
The date of exchange of contracts.
This is because this is the point at which the transaction became binding and the beneficial interest in the property passed to the buyer. It is this date, rather than the date of completion of the transaction, which is deemed to be the date of the disposal. In this instance, that means the disposal will be deemed to have taken place in the preceding tax year, not the current tax year.
The owner of a freehold house is selling the property for £250,000. It was bought five years ago for £200,000 and has been used as a buy-to-let property throughout. Contracts for the sale have just been exchanged. The owner spent £10,000 on an extension to the property and will have incurred a total of £4,700 in costs for the original purchase and the subsequent sale of the house. The owner is a higher rate taxpayer and has not made any other capital gains in the current tax year.
How much capital gains tax (CGT) liability, based on these facts, will the owner incur on completion of the sale?
£7,752.
This is because the net gain is: £250,000 minus the cost of acquisition (£200,000), cost of improvement (£10,000) and legal and other costs (£4,700) = £35,300 net gain. The owner has the full annual allowance available, which is currently £3,000 (for tax year 2024/25) giving a chargeable gain of £32,300. The owner pays higher rate income tax, therefore the applicable tax rate (for the tax year 2024/25) is 24% on the disposal of a residential property, which gives a CGT liability of £7,752.
A solicitor is acting in the purchase of a commercial freehold property for £250,000 in South London. This is the buyer’s first purchase.
Which statement is correct regarding the stamp duty land tax rate applicable?
Stamp duty land tax will be payable and the non-residential and mixed-use stamp duty land tax rate applies.
