TAXATION
INHERITANCE TAX Inheritance Tax is of particular concern for high value properties (over £325,000) and for older clients. Specialist advice will be needed, however the following general points will apply: Purchasers of houses should consider whether or not to own their properties as tenants in common (i.e. each owns a part of the property) or joint tenants (i.e. they hold it all jointly). The distinction is relevant because property owned as joint tenants will pass outside of the will on the death of one of the owners, whereas property owned as tenants in common will pass in accordance with the deceased owner’s wishes. In a similar vein, purchasers of property should understand that they should put wills in place.
VALUE ADDED TAX Buyers and sellers of commercial property need to consider VAT. VAT is always chargeable on the sale of new freehold (commercial) buildings and civil engineering works. If sellers have opted to waive the VAT exemption then they will also charge VAT on the sale of the property and the grant of a lease.
Sales of freehold and assignments of
leasehold properties in both cases subject to a lease to a tenant will often be treated as the transfer of a business as a going concern. This means that no VAT will be charged on the transfer. Whilst VAT is often recoverable, treating a transaction as a transfer of a going concern will aide the purchaser’s cashflow.
OVERSEAS ISSUES It is well known that wealthy overseas individuals still view the UK (central London in particular) as a good investment opportunity. Non-UK based, cash-rich investors are still picking off some of the prime sites. Capital Gains Tax will not apply to non-
UK resident property owners in the same way as UK residents and individuals and companies not resident in the UK will generally be exempt from UK Capital Gains Tax. If your client is a non-UK resident
landlord, they will need to apply the non- resident landlords scheme for Income Tax. This means that the tenant (or the letting agent if one is used) will need to deduct tax
before paying rent to their landlord. There are a number of Inheritance Tax planning structures which one might adopt for property purchases by older non- residents or those planning to move to the UK. This is a specialist area and needs expert advice from a private client adviser.
CONCLUSION The current property market is competitive, and any edge one can get over the competition helps. Whilst tax is the tail and not the dog, and so should not be allowed to do the wagging, nevertheless sellers and purchasers of property do need to consider it. You don’t need to be a tax expert, and you certainly can’t count on selling a toll bridge, but being clued up about tax could bridge the gap (sorry) between being instructed on a property and on closing a sale.
Shimon Shaw is a tax lawyer in Matthew Arnold & Baldwin LLP . 01923 215 047 or
shimon.shaw@
mablaw.com.
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PROPERTYdrum SEPTEMBER 2011 39
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