Tax & Legal Advice
The contents of this website should not be considered an exhaustive guide to buying land as a real estate investment and so therefore we would advise all clients to obtain professional advice in tax and legal matters before considering any purchase. There are many solicitors and tax specialists to choose from.
A solicitor is bound by the Law Society to advise in the client’s best interests and spend a large proportion of their time working on property matters. They will guide you through the legal process and raise the right questions. A solicitor will protect your wellbeing, ensuring no conflict of interests; they will also check the deeds and the contract. They will also make enquiries with the local council in respect to surveys and local authority searches.
A tax specialist can advise you on any tax liability incurred and tax incentives available through land investments. It is worth nothing that all parcels sold incur a stamp duty called Stamp Duty Land Tax (SDLT).
Stamp Duty Land Tax (SDLT).
Stamp Duty Land Tax, was introduced in The Finance Act 2003. SDLT is a modern transaction tax on land transactions involving any estate, interest, right or power in or over land in the United Kingdom.
Capital Gains Tax (GCT).
CGT was introduced by the Finance Act 1965. CGT is a tax on a capital gain. A capital gain arises when an asset is disposed of and its value has increased since it was acquired. An asset is disposed of whenever a taxpayer ceases to own it, so the disposal can be by way of a sale, a gift, an exchange or by destruction of the asset.
Clients who invest in land will be subjected to a CGT charge, the amount by which your investment property grows in value between the time you buy it and the time you sell it. The rate of tax is dependent on the total level of your income and gains for the tax year in which you sell. There are however tax incentives that allow you to offset your liability such as a self invested personal pension or taper relief.
Self Invested Personal Pension (SIPP).
A Self Invested Personal Pension enables you to choose where your pension funds are invested. You can choose Commercial Property or Land in the UK or Abroad. You can also indirectly invest in Residential Property throughout the world. Obviously your SIPP can also invest in pensions, cash funds, equities, unit trusts and all similar investments.
Whether you self invest or not, a SIPP is hugely flexible and you can chose how you take income when you retire. Contributions into a SIPP are fully tax deductible. This could mean tax relief of up to 40 per cent on contributions.
Taper Relief
Taper relief was introduced in 1998 to replace indexation, and to encourage long term-investments and has been extended dramatically since its introduction. Taper relief provides a valuable reduction in the capital gains tax payable on the disposal of assets, especially those with qualifying business use. Therefore it is crucial to categorise whether the asset is considered a business or non business item.
Gains on non-business assets are reduced by 5% per year, once the asset has been held for three years with a maximum reduction amounting to 40%. Business assets attract a maximum taper relief of 75% of the gain after two years of ownership.
The greatest care has been taken to ensure the accuracy of this fact sheet but no responsibility for loss occasioned to any person acting or refraining to act as a result of any statement contained within, can be accepted by its authors, editors or publishers.
