BUYING AND SELLING REAL ESTATE IN ENGLAND AND WALES 125
situations, cause the lender to have an IHT exposure. Certain debts, however, remain deductible when calculating the value of an asset for IHT purposes. • Value added tax ( VAT ). This is applicable to commercial real estate only. Commercial real estate is exempt from VAT unless the sale is of the freehold of a new or partly completed commercial property, or the owner opts to tax (which most do in practice). VAT is payable at the standard rate of VAT, which is currently 20%, unless it is possible to structure an acquisition as a transfer of a going
concern ( TOGC ). A TOGC is generally available to a purchaser of investment real estate, but there are conditions that include the buyer registering for VAT and submitting quarterly VAT returns to the UK’s revenue authorities. The interrelationship of each of these taxes and the formalities which need to be complied with are complex and careful consideration needs to be given to their application to the acquisition of any specified real estate. By way of example, the following table compares ownership by an offshore company with personal ownership.
Ownership by Offshore Company
Ownership by Individual
ATED
Yes, annual charge, depending on value
No
CGT
No
Yes, on disposal on gains. At rates of 18% or 24% (residential) or 10% / 20% (commercial). Relief may be available if property used as main residence
CT
Yes, rental income (mortgage interest will remain deductible) and on disposal on gains at 25%. No main home relief Participators in offshore company have IHT exposure (40% on death, subject to exemptions and reliefs)
No
IHT
Yes, immediate exposure (40% on death, subject to exemptions and reliefs) Rental income taxed at 20%/40%/45%. No deductibility of mortgage interest Stepped rates between 0% and 12%. Higher rates apply to purchases of residential buy-to-let and second residences. Additional rates apply from 1 April 2021 to purchases by non-UK residents the registration or cadastral fees payable in most other European countries. • Legal and other professional fees, which are generally agreed at levels to reflect the purchase price and professional input. These fees will bear VAT at the then current rate (currently 20%), even for overseas investors. Each party usually
IT
No (see CT above)
SDLT
Potentially at higher flat 15% rate if purchase price >£500,000. Additional rates apply from 1 April 2021 to purchases by non-UK residents
9. Expenses The buyer will have to meet at least the following additional expenses at completion of the transaction: • Land Registry fees ranging from £20 to £1,105, depending on the value of the real estate. This is significantly less than
ILN Real Estate Group – Buying and Selling Real Estate Series
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