View the related Tax Guidance about Exchange of contracts
A to Z of land and buildings terminology
A to Z of land and buildings terminologyThe following list, while not exhaustive, provides an overview of the meanings of commonly used terms that a business and / or its adviser may encounter when dealing with a land and property transaction:TermDefinitionAlienation clauseClause restricting the tenant’s right to assign a lease or sublet a propertyBeneficial occupationThe occupation of land to the benefit or advantage of the occupierBeneficial ownerA party that has title to the land for their own benefitCharge certificateThis is the certificate issued by the Land Registry to the mortgage lender showing the charge on the Land RegistryChargeThis is an interest in land which secures payment of a debtChattelsMoveable personal propertyCompletionThis is the final step which leads to the transfer of ownership of a property. The purchaser receives the title documentation in exchange for payment of the purchase priceCompletion moniesThis is the sum payable to the vendor to complete the purchase of the propertyCompletion statementThis is a statement issued to the buyer showing details of the exact amount that must be paid to complete the purchaseCompulsory registrationWhere legally required in England and Wales, the transfer of land must be registered with the District Land Registry when the transfer is completed. If the land is not currently registered, an application for first title will need to be prepared and submittedContractThis is a legally binding document that must be signed by the seller and purchaser (two copies are normally made). Exchanging the document binds
Sale of land from deceased estate
Sale of land from deceased estateLoss on sale of landWhere land is sold from a deceased estate for less than the taxable amount at date of death, relief for the loss is granted by replacing the probate value with the later sale value in the calculation of inheritance tax.In a typical case, where the only interest in land is the deceased’s residence which his executors sell to an unconnected person for less than its probate value, the claim should be straightforward. The lower sale price is substituted for the death value and following a recalculation, a tax repayment is made to the executors. The claims process is considered below.However, the rules for claiming sale of land relief can be complex and can produce disadvantageous results where there are other sales and purchases or where the property sold has changed in some way. Sale of land relief ― principlesBroadly, the provisions are that the ‘sale value’ will be substituted for the ‘value on the death’ and the inheritance tax position re-calculated, if the following conditions are met:•a claim is made by the ‘appropriate person’ who•has sold ‘an interest in land’ included in a deceased’s estate•within four years of death (which may be extended in the case of compulsory purchases)•for a consideration lower than its death valueIHTA 1984, s 191HMRC has confirmed that it will not accept a claim to substitute a higher sale price for the date of death value, even though the legislation implies that
Lifetime ISAs and help to buy ISAs
Lifetime ISAs and help to buy ISAsHelp to buy individual savings accounts (help to buy ISAs) were introduced from 1 December 2015 as a tax-free cash account aimed at encouraging first-time buyers to save for a UK residential property. As well as receiving interest on the balance tax-free, the Government supplements the amount saved with a 25% bonus (up to a maximum of £3,000) when the property is purchased.These ISAs are closed to new savers with effect from 1 December 2019, although anyone with an existing help to buy ISA can keep saving into the account until 30 November 2029.Lifetime ISAs were introduced from 6 April 2017. Like the help to buy ISAs, the Government supplements the amount saved with a 25% bonus (limited to £1,000 per year). There are conditions as to the age of the individual and the funds can only be withdrawn without a penalty to fund a first home, on reaching 60 years old or on diagnosis of a terminal illness.Help to buy ISAs and lifetime ISAs are discussed below. For details of general ISAs, see the Individual savings accounts (ISAs) guidance note. For details of junior ISAs, see the Junior ISAs guidance note.Giving investment adviceThe usual health warning applies here: you cannot give investment advice unless you are authorised to do so by the Financial Conduct Authority. You can tell your client about tax efficient investments but you must not recommend any based on the individual circumstances.See the Regulated investment advice guidance note.Lifetime ISAsThe
Stamp duty land tax ― basic rules for companies
Stamp duty land tax ― basic rules for companiesIntroductionStamp duty land tax (SDLT) is generally payable on the purchase or transfer of interests in land and buildings in England and Northern Ireland where the amount paid is above a certain threshold. In addition, most of these transactions must be notified to HMRC on an SDLT return (also known as a land transaction return), even if no tax is due. See the SDLT ― administration guidance note for further commentary on notifiable transactions.From 1 April 2015, land and buildings transaction tax (LBTT) applies to land transactions in Scotland. For details of LBTT, see Sergeant and Sims on Stamp Taxes AA12–AA22 (SSSD, AA[AA351]–SSSD, AA[AA851]). See also the guidance on the Revenue Scotland website. From 1 April 2018, land transaction tax (LTT) applies to land transactions in Wales. For details of LTT, see Sergeant and Sims on Stamp Taxes AA23–AA34 (SSSD, AA[AA901] – SSSD, AA[AA2101]. See also the guidance on the Welsh Revenue Authority website. Whilst the underlying rules applying to LBTT, LTT and SDLT are broadly similar in nature, the taxes are not identical. The rest of this guidance note covers the law that applies to transactions in England and Northern Ireland only. This guidance note focuses on the rules for transactions where the purchaser is a company. For details of the SDLT rates that apply to these transactions, see the Stamp duty land tax ― basic rules for companies ― tax rates guidance note.For the rules that apply to individuals,
Principal private residence relief ― basic principles
Principal private residence relief ― basic principlesFor an overview of PPR relief, see the Principal private residence (PPR) relief ― overview guidance note. This note summarises further guidance and provides links to further details.Where an individual sells their only or main residence, generally the gain is exempt from capital gains tax (CGT) due to a relief referred to as the principal private residence (PPR) relief. PPR relief is not a statutory term but it is a phrase commonly used by tax professionals.PPR relief may exempt all or part of a gain which arises on a property which an individual has used as their home. This is not a deferral relief; the gain is exempt, it does not come back into charge later.The capital gain is calculated in the normal way, see the Basic calculation principles of capital gains tax guidance note. PPR relief (and possibly lettings relief, see below) is then deducted to arrive at the chargeable gain.££Proceeds of saleXLess: costs of sale(X)XCost or market value as at 31 March 1982 (MV82) if laterXPlus: costs of acquisitionXPlus: enhancement expenditureX(X)GainXLess: PPR relief(X)Gain after PPR reliefXLess: lettings relief (if available)(X)Chargeable gainXThe mechanics of calculating PPR relief and lettings relief are discussed below.For most taxpayers, any gain made on the sale of their home will be completely exempt as it will be wholly covered by PPR relief. However, a chargeable gain can arise if the taxpayer has been absent from the property at some
Deceased’s capital gains tax position
Deceased’s capital gains tax positionCapital gains and losses in the year of deathAn individual is taxable in the usual way on chargeable gains arising in the tax year of death, which is the period starting with the previous 6 April and ending on the date of death.The normal computational rules apply to calculate those gains. The full annual exemption and all applicable reliefs are available. The rates of tax are applied in the usual way, with the lower rates of 10%, and 18% for residential property, available to the extent of the unused basic rate band. If the individual dies early in the tax year, income for the year is likely to be lower with the consequence that more of the basic rate band will be available for capital gains.Remember that the relevant date for capital gains tax is the date of contract. Where death occurs between exchange of contracts and completion, the contract remains valid and the personal representatives (PRs) will complete the sale and receive the proceeds. However, any chargeable gain is attributable to the deceased and not to the PRs.See the Introduction to capital gains tax guidance note and other notes in that sub-topic of the Personal Tax module.There is a special rule for losses realised in the year of death. They are first relieved against gains arising in that year. Any excess losses may then be carried back to the three tax years preceding the year of death and set against the net gains of
Deferring the property gain ― individuals
Deferring the property gain ― individualsThere are various capital gains tax reliefs which an individual can utilise to defer the capital gain on a property disposal until a later time, thereby postponing the tax bill. These are discussed below.Categorising the gainThe first step in deciding what deferral reliefs may be appropriate to the taxpayer’s situation is to decide whether the gain on property relates to the disposal of a business asset or a non-business asset. Where the taxpayer disposes of a business asset, a wider variety of reliefs are available.Non-business assetsA property business is often not considered to be a trade as the properties are held for investment purposes. If the property business were a trade, the sale of property would be a sale of stock and would therefore be chargeable to income tax. Whether the letting of property can amount to a trade is a question of fact. This is discussed in the Transactions in UK land ― individuals and Application of the badges of trade guidance notes.On this basis, the sale of a property used for the purposes of letting is normally classed as a non-business asset.Note that if the property has been used as the individual’s only or main residence at any point during the period of ownership, principal private residence (PPR) relief may be available to exempt all or part of the gain. See the Principal private residence relief ― basic principles guidance note.Business assetsAs far as land is concerned, generally the following can be
Tax legislation doesn't stand still, and neither should you. At Tolley we're constantly building tools to give you an edge, save you time and help you to grow your business.