12 June 2017
This week Martin Johnson answers some property tax queries regarding Capital Gains Tax, Stamp Duty and setting up a limited company as a means of buying freehold.
Q. I have recently sold a buy-to-let property in the UK, which generated a capital gain. Can I offset this gain against a rental property development in Spain?
A. Unfortunately not! There is no rollover/holdover relief, or deferral of Capital Gains Tax, caused by the sale of a UK residential property by investing in another property, regardless of whether the new property is in the UK or overseas. The only exceptions to this rule are: (a) the sale relates to a compulsory purchase order; or (b) in the case of a qualifying furnished holiday letting.
Q. Will I have to pay stamp duty land tax on a property I am about to inherit?
A. Stamp Duty Land Tax (SDLT) is generally payable on land transactions. There is a land transaction when land passes to a beneficiary under a will, or by virtue of the law on intestacy*. However, the legislation governing SDLT (Finance Act 2003, Schedule 3, para. 3A) provides that the acquisition of property through the entitlement of a will or on the intestacy of a deceased person is exempt from SDLT.
You should note though that this exemption does not apply where the beneficiary gives consideration other than the assumption of secured debt or the acceptance of an obligation to pay Inheritance Tax. Secured debt is debt that, immediately after the death of the deceased person, was secured on the land. The most common example of this is a mortgage to the extent that the mortgage is not paid off on death.
The exemption applies whether the transfer is to a sole beneficiary or to joint beneficiaries.
Q. I live in a leasehold flat in a property in which there are six other leasehold flats. The opportunity has arisen for the leaseholders to buy the freehold reversion from the landlord and all of the leaseholders have agreed to contribute equally towards the purchase. Our solicitor has advised a limited company should be set up to buy the freehold. Are there any tax consequences involved here?
A. The Law of Property Act 1925 stipulates that a maximum of four persons can be the legal owners of land and property, which is likely to be the reasoning behind your solicitor suggesting the use of a company. This restriction, however, only applies for legal ownership, which means that named persons could hold the ownership as trustees for other persons too. Tax is usually based on beneficial ownership, not legal ownership and a 'bare trust' is often used in cases where one or more persons would hold the freehold reversion as bare trustee for all the leaseholders. For tax purposes, the tenants would be deemed to own their share of the freehold absolutely. A similar arrangement can exist in a company providing the company is a 'nominee company' which is the corporate equivalent of a bare trust. This too would have the same consequences as a bare trust.
If you have any queries on property tax then please get in touch with me, or your usual UHY partner. We’ll be pleased to help.
*the condition of the estate of a person who dies without having made a valid will or other binding declaration.
