TAXATION The joy of tax Shimon Shaw on how a tax angle could win business. E
very agent has his stories of interesting properties, some more interesting than others, but this one, currently for sale through Humberts
Leisure at £450,000, offers multi interest levels. It is the Monaco of the West Midlands – a very attractive private toll bridge generating around £200,000 per year in revenues – completely exempt from income tax on its profits. The 18th century bridge at Whitney-on-
Wye, between Hereford and Hay-on-Wye also has a stretch of riverbank and a grade II-listed cottage with a sitting tenant, the toll keeper, are included in the price. The original bridge was built with
private funds in 1779 to provide a scenic short-cut from Hereford to Hay-on-Wye and in return an Act of Parliament in 1797 granted it tax exemption; “The said Bridge shall not be rated, assessed for or towards any public or parish rate or duty whatsoever”. It is one of just a handful of such bridges extant in the country. It can be passed on to heirs without
falling prey to a levy. Prospective owners will also forfeit having to pay stamp duty, business rates and capital gains tax. But they will have to pay for its maintenance and the toll keeper’s wages. The question most of you will be asking
is: so what? There are only a few of these bridges, and it is almost certainly the case that the sellers will know what they are selling. If you do come across one of them then the tax breaks are a key selling point – indeed the ability to shelter the value from capital gains tax and inheritance tax might be the key to making that sale.
ASK NOT FOR WHOM THE BELL TOLLS… In most cases asking whether there is an obscure 18th century statute exempting your client’s property from tax is going to seem, frankly odd. However, it is important to not forget
entirely about tax – and this is a great way to add value to your clients. Whilst you may not be qualified to give tax advice yourself, knowing the right questions to ask can make the difference between winning an instruction or losing it. The rest of this article gives some examples of
38 SEPTEMBER 2011 PROPERTYdrum Whitney on Wye Bridge .
and whilst you will generally be acting for sellers, you may find that from a deal making point of view, tax planning can make a purchase more affordable. As an agent these are some of the things
you need to know about Stamp Duty Land Tax (SDLT):
• What is the value of the property?
Generally speaking, the greater the saving the stronger the argument for Stamp Duty Land Tax planning. Stamp duty land tax schemes are aggressive tax planning and the fees are high. They are not suitable for everyone – particularly for purchasers who are very conservative. If you suggest planning for a client who will only save a few thousand pounds and they end up with an HMRC investigation – not only will they not thank you, but it will also reflect
where a property sale can include some tax points which you can highlight to your clients for some brownie points. Many of these apply equally to residential and commercial property.
STAMP DUTY LAND TAX First off, Stamp Duty Land Tax schemes. Banks are wary of them, HM Revenue and Customs hate them and often they will make the life of an agent more difficult. But you can’t get away from them and indeed now more than ever (with the introduction of the five per cent rate of stamp duty land tax), they have become a feature of many property transactions. Purchasers have had enough of the Government taxing money on which they already paid tax. Stamp Duty Land Tax is a buyer’s tax,
badly on you. On the other hand, if the purchaser walks away with a large saving you’ll score points.
• • Is the scheme being implemented by
the same people who devised it? If the scheme has been devised by a tax planning boutique as opposed to the solicitors who are acting on the conveyance there may be delays, or the purchaser’s solicitors may feel uncomfortable acting. It is better to determine how the conveyancers feel about this before getting too far into the transaction.
The position of the lenders if any needs
to be determined. Many lenders have adopted a policy of not lending when there is SDLT planning. Stamp Duty Land Tax planning may therefore be most appropriate for cash purchasers. Off the subject of schemes, there are a
number of Stamp Duty Land Tax “traps”, purchasers should avoid. Common traps include where there are works, where a purchaser is a partnership connected with the seller, and lease assignments.
property is sold such as part of the garden, or on larger properties extended grounds, cottages or barns, then HMRC may argue that this is not part of the main residence. Sales of buy to let or second homes:
• •
These will often not benefit from main private residence Capital Gains Tax relief, but in cases where they have been occupied as the seller’s main residence for at least a period of time some relief may be available. The corollary to the previous point is
that purchasers of second homes will need tax advice to maximise their Capital Gains Tax position – by electing which of their homes is to be treated as their main residence.
CAPITAL GAINS TAX Sellers of residential property will be selling their main asset, in most cases (maybe less often than in the past) at a gain. Generally speaking Capital Gains Tax will not be an issue due to the well known relief for main private residences, however, look out for the following, where tax relief will be needed:
Sales of part of properties: If part of a
Photo credit: Image Copyright Row17. This work is licensed under the Creative Commons Attribution-Share Alike 2.0 Generic Licence.
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