Tag: SDLT

SDLT rules for Subsidiary Dwellings

The normal rule is that if you buy more than one property the extra 3% SDLT is payable.

However, if you buy a property that contains subsidiary dwellings and the main property will be your home you might not have to pay the extra 3%, the rules are in SDLTM07955

SDLT – higher rates for additional dwellings: What is a dwelling – further information

It will be important in some cases to determine whether a premises consists of one or more than one dwelling.
It is a question of fact whether a purchase consists of one or more than one dwelling. A self-contained part of a building will be a separate dwelling if the residents of that part can live independently of the residents of the rest of the building including independent access and domestic facilities.
In certain cases a purchase of more than one dwelling will be treated the same as if a single dwelling had been purchased. This is the case if any of the dwellings purchased are subsidiary dwellings. A subsidiary dwelling must be within the same building as or in the grounds of another dwelling purchased in the same transaction (the principal dwelling). The principal dwelling and the garden and grounds attributable to that principal dwelling must be at least two thirds of the value of the land purchased in the transaction.
There can be more than one subsidiary dwelling purchased at the same time as a principal dwelling, but the principal dwelling must always be at least two thirds of the transaction value.
Where a principal dwelling is purchased and all the other dwellings purchased are subsidiary dwellings, the tests for whether the transaction is a higher rates transaction are applied as if there was only one dwelling purchased. If the purchase of a principal dwelling is a first property purchase or a replacement of a main residence the higher rates will not apply.
Multiple dwellings relief may be claimed where there are separate dwellings.

You can also use Multiple Dwellings Relief with the Subsidiary Dwellings Rules, MDR means you divide the property price by the number of dwellings equally then apply SDLT subject to a minimum of 1% SDLT.

SDLT relief for multiple dwellings

You can claim relief when you buy more than one dwelling where a transaction or a number of linked transactions include freehold or leasehold interests in more than one dwelling.

If you claim relief, to work out the rate of tax HMRC charge:
divide the total amount paid for the properties by the number of dwellings
work out the tax due on this figure
multiply this amount of tax by the number of dwellings

The minimum rate of tax under the relief is 1% of the amount paid for the dwellings.

https://www.gov.uk/guidance/stamp-duty-land-tax-relief-for-land-or-property-transactions#sdlt-relief-for-multiple-dwellings

steve@bicknells.net

Can I move income from my investment to my spouse?

We have covered this topic before in Are property transfers between spouses taxed?

That blog discussed Capital Gains and SDLT.

We also explained the process in this blog How do you share property ownership income between spouses?

That blog covered Form 17 and Declaration of Beneficial Interest

Today there was a great blog from Croner Taxwise that I wanted to share it

Can I assign the income from my investment property to my spouse so it is taxed at a lower rate?

A. Due to the abundance of legislation that applies to land transactions and gifts, various tax implications are of concern.
Where only an income stream is transferred and the transferor retains an interest in the capital value of the property generating the income, the income is treated for income tax purposes of the income of the transferor under the settlement legislation at ITTOIA 2005 s.624.
To effect a transfer of the income stream and achieve the client’s objective, the transferor must also transfer a proportionate capital interest. To transfer 50% of the income stream effectively, a 50% interest in the capital value of the property also must be transferred.
Capital assets are transferred between spouses at nil gain or loss for capital gains tax purposes. The deemed consideration is so much as would secure a net gain of £0 after accounting for enhancement expenditure, costs to transfer, etc. There are exceptions to this rule where the spouses are not living together so do not assume tax neutrality will apply.
Take additional care where the property in question was previously the main residence of the transferring spouse, as private residence relief may be inadvertently lost. A transferee spouse will only acquire the ownership and occupation history of the transferor where the property is transferred whilst it is the main residence of both spouses (TCGA 1992, s.222(7)). If the property is not their main residence, a gain which would have been 100% relieved in the hands of the transferring spouse will come into charge on a future disposal by the acquiring spouse.
The final tax charge to consider is Stamp Duty Land Tax. There is no exemption from SDLT for transfers between spouses. SDLT is chargeable where the acquiring spouse provides consideration for their interest in the property, including assuming liability for debt.
Although not technically a tax issue, it is of note that a transfer of beneficial ownership of a property does not require a conveyance of legal title. Although a trust arrangement does not need to be written to be effective, a written declaration which is signed and dated can prevent disputes with HMRC over the validity and commencement of the transfer, particularly where income continues to be deposited into a joint bank account.

 

steve@bicknells.net

 

How much SDLT do you pay on Overage?

What is Overage

http://www.propertylawuk.net/propertytransactionsoverage.html

When land is sold, the vendor will normally do his best to sell at the best possible price – indeed, if the vendor is a public sector authority or a charity, he may be obliged to sell at the best possible price. Sometimes, however, the best possible price may only be available at some time in the future, or not at all. The most common example of this is where planning permission may be granted for a more valuable use of the land, but it is by no means certain that the permission will be forthcoming and, in any event, this is unlikely to happen for some time. Similarly, if land is sold for a particular purpose, such as for the development of 50 houses, and the developer in fact manages to build 60, then the land will obviously be more valuable with 60 houses on it rather than the original 50.

HMRC Rules

https://www.gov.uk/guidance/stamp-duty-land-tax-the-amount-used-to-calculate-whats-payable#cc

Payment depending on the outcome of future events

A transaction could include an amount that the buyer will only pay if some future event happens. This is known as the ‘contingent consideration’.

For example, a developer might agree to pay an extra sum, on condition that they get planning permission for redevelopment.

In these cases you pay SDLT on the assumption that the contingency will happen. The buyer can apply to defer payment of SDLT on the contingent amount. But HMRC still charge the tax at the appropriate rate for the total chargeable consideration.

For example, a builder buys a plot for £400,000 and agrees to pay a further £200,000 if he gets planning permission for a new building. He can apply for deferment on SDLT on the conditional £200,000 but will pay SDLT on the initial payment now. The SDLT due on the initial payment will be at 4%, because the total potential payment is above the £500,000 threshold.

Payment depending on uncertain future events

Some transactions may include a later payment which depends on an unknown variable. This is known as the ‘uncertain or unascertained consideration’.

For example, future payments based on the turnover of a business.

In these cases, calculate the SDLT on the basis of a ‘just and reasonable estimate’ of the amount involved. The buyer can apply to defer payment of the uncertain or unascertainable part. Otherwise, make an appropriate adjustment when the amount of consideration is certain.

steve@bicknells.net

 

How many properties do I have for SDLT?

Above is the diagram from Consultation

But what if you own properties in Companies and Partnerships (registered with HMRC with UTR’s)? Does that mean you own multiple properties?

I spoke to the HMRC SDLT Office about this and they said properties owned by other entities are not owned by an individual so shouldn’t count.

Phone

Call HMRC for help with Stamp Duty Land Tax queries.

Telephone:
0300 200 3510

Opening times:

8.30am to 5pm, Monday to Friday

 

We all want to get things right and follow the rules, so if you file an SDLT return you have 12 months to amend it and during that time you can write to HMRC and set out the exact circumstances, so if you have made a mistake it can be corrected.

The address to write to is

BT – Stamp Duty Land Tax
HM Revenue and Customs
BX9 1HD
United Kingdom

steve@bicknells.net

 

 

Why don’t Partnerships pay SDLT on land transfers?

 

strategies

With the introduction of interest rate restrictions from 2017/18 for individual Property Investors there has been a lot of interest in incorporating property businesses.

Technically property investment isn’t a business although HMRC seem to have blurred the lines with their Making Tax Digital documents which describe Property Investment as a Business.

The recent clarification from the Ramsay case has meant that even investors with a small portfolio are likely to qualify for incorporation tax relief provided the landlord is sufficiently active in managing their properties. Claiming Incorporation Tax Relief rolls forward the capital gain into the company.

So that leaves SDLT and re-financing costs as the next major hurdles.

The rules on SDLT for Partnerships are in the Finance Act 2003 Schedule 15 and amendments in the Finance Act 2006 Schedule 24.

http://www.legislation.gov.uk/ukpga/2003/14/schedule/15

http://www.legislation.gov.uk/ukpga/2006/25/schedule/24

It is complicated but essentially it comes down to the following formulae

MV x (100 – sum of lower proportions (SLP))%

What this means is that if the land being put into the partnership is effectively retained by the transferor-partner (or persons connected with the transferor) after the transaction, you basically end up with:

MV x (100-100) = £0

So a husband and wife partnership owning 50% each could transfer the property to a company for 50% of the shares each and in theory there would be no SDLT charge.

To qualify as a Partnership or LLP:

  1. You need to be registered with HMRC
  2. You need a partnership agreement
  3. You need separate bank accounts
  4. Leases and Agreements need to be in the name of partnership

HMRC also require that any restructuring is for Commercial Reasons and not to avoid tax, otherwise it will be caught by anti tax avoidance rules.

steve@bicknells.net

 

 

 

Are property transfers between spouses taxed?

Mosaïque de logements

When you think about property and property investments the first tax that comes to mind is Capital Gains Tax (CGT).

You don’t pay Capital Gains Tax on assets you give or sell to your husband, wife or civil partner, unless:

The tax year is from 6 April to 5 April the following year.

https://www.gov.uk/capital-gains-tax/gifts

However, if your property has a mortgage transfering it could create a Stamp Duty Charge (SDLT).

You might pay SDLT when you transfer a share in a property to a husband, wife or partner when you do one of the following:

  • marry
  • enter into a civil partnership
  • move in together

You pay SDLT if the consideration given in exchange for the share transfer is more than the current SDLT threshold for the property type.

Example 1 – you don’t pay SDLT

A house has a value of £180,000. The owner of the property has equity of £90,000 and an outstanding mortgage of £90,000. The owner transfers a half share of the property to their partner.

Their partner:

  • pays cash for half of the equity – £45,000
  • takes responsibility for 50% of the outstanding mortgage – £45,000

So the consideration for SDLT is £90,000, made up of the:

  • cash payment
  • 50% share of the outstanding mortgage

£90,000 is below the current SDLT threshold so there’s no tax to pay. You must still tell HM Revenue and Customs (HMRC) about the transaction on an SDLT return.

Example 2 – you pay SDLT even though no money changes hands

The owner of a property valued at £500,000 with an outstanding mortgage of £400,000 transfers half the property to their partner when they marry. Their partner takes on 50% of the mortgage (£200,000).

HMRC charge SDLT on the amount paid for a property or the amount of ‘consideration’ given.

By taking liability for the mortgage, the owner’s partner has given ‘consideration’ of £200,000 for their share of the property which is £1,500 SDLT (0% of £125,000 + 2% of £75,000).

They must pay SDLT on that amount and tell HMRC about the transfer by filling in an SDLT return.

The equity isn’t included in the calculation as you only pay SDLT on the consideration given.

If the transfer is a gift

If the transfer is a gift and there’s no consideration, SDLT doesn’t normally apply.

https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

steve@bicknells.net

Home Buyers have saved £657m in SDLT!

One family house for sale

In the 12 months since December 2014 when new SDLT rules came into place home buyers have saved an estimated £657m in Stamp Duty (SDLT).

The Autum Statement 2014 announced the following change to Stamp Duty.

• No stamp duty will be paid on the first £125,000 of a property
• 2% will be paid on the portion up to £250,000
• 5% is paid for the portion up to £925,000
• 10% is paid on the portion up to £1.5m
• 12% is paid on anything above that

HMRC have a handy calculator, here is link

http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

New analysis released by HMRC shows that the benefits of this reform have been felt across the country, with homebuyers saving an estimated total of:

  • £24 million in the North East or £900 for the average house
  • £90 million in the North West or £700 for the average house
  • £74 million in the East Midlands or £500 for the average house
  • £131 million the South West or £4,800 for the average house
  • £38 million in Wales or £800 for the average house

steve@bicknells.net

5 reasons why you need a Property Investment Company!

Student house

There are many reasons why using a company to invest in residential property is good idea and Summer Budget 2015 made companies an even more attractive option.

1. Restriction of Mortgage Interest Tax Relief

Currently this is just a ‘Policy Paper’ but the plan is to restrict individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows

2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%

2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%

2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%

2020/21 100% will get only 20% relief

For a 20% tax payer that’s fine but for higher rate taxpayer its a disaster that will lead to them paying a lot more tax

These rules will not apply to Companies, Companies will continue to claim full relief.

This link shows some worked examples – Mortgages for Business

Most investors will have multiple properties and high levels of borrowing.

Furnished Holiday Lets are excluded from the restriction – Official Policy

2. Corporation Tax Rates

The current rate of Corporation Tax is 20% but its falling year on year and by 2020 it will be 18%.

Not only that, its the same rate no matter how many companies you have, previously when there were multiple Corporation Rate if you had associated companies the small companies rate was reduce in a marginal rate calculation.

Individual tax rates are

Basic rate                             20% Up to £31,785
Higher rate                            40% £31,786 to £150,000
Additional rate 45% Over £150,001

3. Capital Gains Tax

Capital Gains Tax is at 20% in companies (falling to 18% by 2020) and companies are allowed to apply HMRC Indexation Allowance to offset the effect of inflation.

Capital gain - company

Individuals get an annual allowance of £11,100 and basic rate tax payers pay 18% with higher rate tax payers paying a massive 28% with no indexation.

There are special rules for UK Companies owned by Non UK Residents.

There is no rollover relief for companies or individuals investing in Residential Property because investment isn’t a trading activity.

4. Stamp Duty

Stamp Duty (SDLT) on selling Shares is 0.5%.

Example – So £1,995 × 0.5% = £9.97. This is rounded up to the nearest £5, which means you pay £10 Stamp Duty.

Stamp Duty on Property Sales is calculated as follows

• No stamp duty will be paid on the first £125,000 of a property
• 2% will be paid on the portion up to £250,000
• 5% is paid for the portion up to £925,000
• 10% is paid on the portion up to £1.5m
• 12% is paid on anything above that

HMRC have a calculator, here is link

http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

But you should also consider ATED (Annual Tax on Enveloped Dwellings) – more details in this blog – http://stevejbicknell.com/2014/09/12/more-tax-on-companies-owning-high-value-residential-property/

SDLT is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies (or ‘non-natural persons’). These include:

  • companies
  • partnerships including companies
  • collective investment schemes

The 15% rate doesn’t apply to property bought by trustees of a settlement or bought by a company to be used for:

  • a property rental business
  • property developers and trader
  • property made available to the public
  • financial institutions acquiring property in the course of lending
  • property occupied by employees
  • farmhouses

The standard residential rate of SDLT applies in these cases. These exclusions are subject to specific conditions.

If 6 or more properties form part of a single transaction the rules, rates and thresholds for non-residential properties apply.

5. Inheritance Tax (IHT) and Potentially Exempt Transfers planning

One of the big benefits of Shares is that its easy to split ownership.

Potentially Exempt Transfers (PET’s) allow you to give away shares provided you survive more that 7 years after the transfer, shares make PETs easy and simple.

When you give away shares it will potentially trigger a capital gain but you will be able to use your personal capital gains allowance of £11,100 to offset this gain.

steve@bicknells.net

Will property prices go up because of changes to stamp duty?

4880157508_dd2f144a45_m

The big news in the Autum Statement was the change to Stamp Duty.

• No stamp duty will be paid on the first £125,000 of a property
• 2% will be paid on the portion up to £250,000
• 5% is paid for the portion up to £925,000
• 10% is paid on the portion up to £1.5m
• 12% is paid on anything above that

HMRC have a handy new calculator, here is link

http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

There are also more details at https://www.gov.uk/government/publications/rates-and-allowances-stamp-duty-land-tax/rates-and-allowances-stamp-duty-land-tax

98% of all buyers will pay less tax under the new system

Will this lead to big increases in property values?

steve@bicknells.net

Overseas property investors – are you ready for CGT in 2015

Taxes

In the Autumn Statement 2013 it was announced that a CGT charge will be introduced from April 2015 on ‘future’ capital gains made by non-UK residents disposing of UK residential property. George Osborne said…

“Britain is an open country that welcomes investment from all over the world, including investment in our residential property”

“But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not. That is unfair.”

UK Residents typically pay capital gains tax at 28% on any profit from selling property that is not considered their primary residence.

 

 Reuters reported in Dec 2013…

Property lawyers and estate agents said foreign owners would be relieved the tax will not apply to historic gains before 2015. But they cautioned that the overall impact could be marginal as many foreign investors see London property as a safe and profitable place to park capital.

“Tax is not the primary driver for the majority of international buyers of residential property in London,” Knight Frank’s head of global research, Liam Bailey, said.

“It is important to note that the change to CGT rules brings the UK in line with other key investor markets, such as New York and Paris, where equivalent taxes can approach 35-50 percent depending on the owner’s residency status.”

It was not immediately clear how the tax would be collected and how it would apply if foreign owners used a domestic company to purchase property.

When a company disposes of an asset and makes a capital gain, as the main rate of corporation tax in 2014 is 21% (20% small profits rate) there could be a future tax saving opportunity for overseas investors to transfer property to limited companies.

There are other tax implications for example ATED (Annual Tax on Enveloped Dwellings) and SDLT (Stamp Duty Land Tax) but now could be a good time to consider your options.

steve@bicknells.net