The Rent Review Specialist
CTT
Tax and VAT
Generally, investors own property in their own names, or a partnership (LLP) and/or through a limited company (LTD or PLC) and/or through a trust or charity.
In outline, as I understand, (also based on information on HMRC website), there are two types of tax applicable to property: income Tax and Capital Tax, and for each tax there are various allowances and means by which one can qualify for tax relief.
Income and Revenue comprises rent(s) and other receivables (amounts payable by the tenant) upon which there is some profit element.
Every individual has an annual income tax allowance. Income Tax rates vary according to taxable income bands.
Capital tax operates in several ways: Capital Gains Tax (CGT), InheritanceTax (IHT) replacing Capital Transfer Tax (CTT), Stamp Duty Land Tax (SDLT) and Capital Allowances
Capital Gains Tax is a tax on the profit or gain you make when you sell or otherwise ‘dispose of’ an asset. You usually dispose of an asset when you cease to own it: for example, if you sell it, give it away as a gift, transfer it to someone else or exchange it for something else.
Every individual has an annual capital gains tax allowance. Capital losses can be set against capital gains in other holdings before taxation.
For companies, chargeable gains are subject to corporation tax, and companies may claim an indexation allowance to offset the effect of inflation.
It is suggested that few surveyors understand tax and property and I am no exception, so I advise you to consult your accountant. The lack of understanding by surveyors, so I am told, is mainly to do with the legitimate ways to avoid and minimise liability. However, I do have experience of valuations for tax purposes and often provide valuations for probate and transfer of ownership.
The valuation date for the calculation for CGT is either 31 March 1982 or the date of purchase, whichever the sooner, and the calculation based on the difference between the purchase price net of allowable costs at the date of purchase or the market value at 31 March 1982 whichever appropriate, and the proceeds net of allowance costs as at the date of sale. For IHT and probate, the valuation is the date of death, but IHT may be adjusted if the sale price within 6 months or so of the date of death differs from the value agreed for probate.
Agreeing the value for tax with HMRC is a three-stage process. In the first instance, I advise you to obtain a written report and valuation from an experienced surveyor. I am frequently instructed to provide CGT and probate valuations and my reports are accepted by HMRC. The report and valuation should accompanying the tax return: it is useful for the HMRC to read how the value has been arrived at. If HMRC accepts the value then the second and third stages would not apply and the matter can progress to tax computation. If not and the second stage arises, HMRC and the surveyor would consult and agree the market value. In my experience, a comprehensive report showing how the value has been arrived at, including information taken into account, is a sure way to avoid the second-stage or at least minimise the consequences. If the tax-payer has not obtained a surveyor’s report but simply entered a figure on the tax return then the risk of HMRC querying the figure is increased. In my experience, generally, where HMRC has queried the figure, an unrepresented tax-payer is unlikely to be as successful in reaching favourable agreement. The third-stage only applies if HMRC and the surveyor were unable to agree the market value, in which case the matter would be referred to a tax tribunal or court.
SDLT:
SDLT (replaces Stamp Duty) may become payable when all or part of an interest in land or property is transferred from one person to another if anything of monetary value is given in exchange. Anything of monetary value that is given in exchange for the property is referred to as the 'consideration'. This can be cash or another type of payment. It can also include the value of any outstanding mortgage that the buyer takes over. SDLT may be charged on the consideration.
SDLT may also be payable on the purchase price/lease premium of commercial property.
With a new lease, SDLT may be payable either on the amount of the premium or the amount of any rent due (over the term of the lease). Generally, on grant of lease, the tenant pays the SDLT. However, the effect of the amount of SDLT may figure in the negotiations.
Tax relief for capital allowances - plant and machinery, including landlord’s fixtures and fittings - requires specialist advice.
VAT:
Land and buildings, such as freehold sales, leasing or renting, are normally exempt from Value Added Tax (VAT). (For VAT purposes, the definition of “land” includes buildings.)
It is possible to opt to tax a commercial property for VAT, in which case VAT would be added to the rent(s) and any VAT on allowable management expenses reclaimable.
It is not compulsory to opt to tax a commercial property for VAT, but if you do then you would have to keep proper accounting records to satisfy compliance with HMRC. Once registered, it is only possible to deregister after you have owned the property for at least 20 years. If you sell the property then the buyer can deregister if he wants.
Regardless of any VAT registration threshold (based on turnover), some types businesses are unable to recover part or all VAT on their business expenditure: for example, banks, betting offices, funeral directors. If you have a property let to a bank, it is generally better to not opt to tax the property because the tenant would otherwise not be able to recover all the VAT, which means the property would be more expensive to lease.
Residential property is normally exempt from VAT so if for example there is a flat above the shop but the whole of the property is let to the shop tenant then the landlord would have to apportion the amount of rent attributable to the flat and not charge VAT on that amount.
You can find out more about opting to tax land and buildings by visiting HMRC website
In outline, as I understand, (also based on information on HMRC website), there are two types of tax applicable to property: income Tax and Capital Tax, and for each tax there are various allowances and means by which one can qualify for tax relief.
Income and Revenue comprises rent(s) and other receivables (amounts payable by the tenant) upon which there is some profit element.
Every individual has an annual income tax allowance. Income Tax rates vary according to taxable income bands.
Capital tax operates in several ways: Capital Gains Tax (CGT), InheritanceTax (IHT) replacing Capital Transfer Tax (CTT), Stamp Duty Land Tax (SDLT) and Capital Allowances
Capital Gains Tax is a tax on the profit or gain you make when you sell or otherwise ‘dispose of’ an asset. You usually dispose of an asset when you cease to own it: for example, if you sell it, give it away as a gift, transfer it to someone else or exchange it for something else.
Every individual has an annual capital gains tax allowance. Capital losses can be set against capital gains in other holdings before taxation.
For companies, chargeable gains are subject to corporation tax, and companies may claim an indexation allowance to offset the effect of inflation.
It is suggested that few surveyors understand tax and property and I am no exception, so I advise you to consult your accountant. The lack of understanding by surveyors, so I am told, is mainly to do with the legitimate ways to avoid and minimise liability. However, I do have experience of valuations for tax purposes and often provide valuations for probate and transfer of ownership.
The valuation date for the calculation for CGT is either 31 March 1982 or the date of purchase, whichever the sooner, and the calculation based on the difference between the purchase price net of allowable costs at the date of purchase or the market value at 31 March 1982 whichever appropriate, and the proceeds net of allowance costs as at the date of sale. For IHT and probate, the valuation is the date of death, but IHT may be adjusted if the sale price within 6 months or so of the date of death differs from the value agreed for probate.
Agreeing the value for tax with HMRC is a three-stage process. In the first instance, I advise you to obtain a written report and valuation from an experienced surveyor. I am frequently instructed to provide CGT and probate valuations and my reports are accepted by HMRC. The report and valuation should accompanying the tax return: it is useful for the HMRC to read how the value has been arrived at. If HMRC accepts the value then the second and third stages would not apply and the matter can progress to tax computation. If not and the second stage arises, HMRC and the surveyor would consult and agree the market value. In my experience, a comprehensive report showing how the value has been arrived at, including information taken into account, is a sure way to avoid the second-stage or at least minimise the consequences. If the tax-payer has not obtained a surveyor’s report but simply entered a figure on the tax return then the risk of HMRC querying the figure is increased. In my experience, generally, where HMRC has queried the figure, an unrepresented tax-payer is unlikely to be as successful in reaching favourable agreement. The third-stage only applies if HMRC and the surveyor were unable to agree the market value, in which case the matter would be referred to a tax tribunal or court.
SDLT:
SDLT (replaces Stamp Duty) may become payable when all or part of an interest in land or property is transferred from one person to another if anything of monetary value is given in exchange. Anything of monetary value that is given in exchange for the property is referred to as the 'consideration'. This can be cash or another type of payment. It can also include the value of any outstanding mortgage that the buyer takes over. SDLT may be charged on the consideration.
SDLT may also be payable on the purchase price/lease premium of commercial property.
With a new lease, SDLT may be payable either on the amount of the premium or the amount of any rent due (over the term of the lease). Generally, on grant of lease, the tenant pays the SDLT. However, the effect of the amount of SDLT may figure in the negotiations.
Tax relief for capital allowances - plant and machinery, including landlord’s fixtures and fittings - requires specialist advice.
VAT:
Land and buildings, such as freehold sales, leasing or renting, are normally exempt from Value Added Tax (VAT). (For VAT purposes, the definition of “land” includes buildings.)
It is possible to opt to tax a commercial property for VAT, in which case VAT would be added to the rent(s) and any VAT on allowable management expenses reclaimable.
It is not compulsory to opt to tax a commercial property for VAT, but if you do then you would have to keep proper accounting records to satisfy compliance with HMRC. Once registered, it is only possible to deregister after you have owned the property for at least 20 years. If you sell the property then the buyer can deregister if he wants.
Regardless of any VAT registration threshold (based on turnover), some types businesses are unable to recover part or all VAT on their business expenditure: for example, banks, betting offices, funeral directors. If you have a property let to a bank, it is generally better to not opt to tax the property because the tenant would otherwise not be able to recover all the VAT, which means the property would be more expensive to lease.
Residential property is normally exempt from VAT so if for example there is a flat above the shop but the whole of the property is let to the shop tenant then the landlord would have to apportion the amount of rent attributable to the flat and not charge VAT on that amount.
You can find out more about opting to tax land and buildings by visiting HMRC website