Whilst cars, boats and horses are expensive to buy and keep, often those are tax-free upon sale, whereas land and buildings (or ‘real property’) are taxed at every turn.
Buying a Property
When purchasing real property, the most infamous tax is stamp duty land tax (SDLT; in England and Northern Ireland) – a relatively new tax, introduced in its current form in 2003, flowing from stamp duty (one of the oldest taxes!). In Scotland, the equivalent is land and buildings transactions tax, and land transaction tax applies in Wales.
SDLT is a self-assessed tax paid by the purchaser of the property based on a percentage of the consideration; rates are in place for residential properties (i.e., suitable for use as a dwelling as well as the garden or grounds) and non-residential or mixed, the rates for the former being higher and at lower thresholds than the latter. Residential properties attract surcharges for purchasers who already own a property, for non-resident individuals and for limited companies on consideration above £500,000.
Holding a Property
Besides existing business rates for commercial premises and council tax for residential properties, there is the recently announced high-value council tax surcharge (referred to widely throughout the press as the ‘mansion tax’) for the owner of properties worth over £2m (unlike council tax, which is chargeable on the occupier).
When a limited company owns a residential property worth over £500,000, which is not subject to certain business reliefs, a fixed annual tax on enveloped dwellings is levied each year based upon five-yearly revaluations (the last one being on 1 April 2022).
Selling a Property
When a property is sold, capital gains tax (CGT) is the principal tax to consider – residential properties require an extra layer of thought: a separate CGT return within 60 days of completion by nonUK residents and when CGT is payable by UK residents. The most valuable CGT relief, principal private residence relief, cost HM Treasury £31.5bn in CGT in 2023/24 that would otherwise be charged on people selling their main or only residence at a profit; periods of non-occupation in the property can still be subject to CGT, but second homes and rental properties will be predominantly subject to CGT.
Commercial properties might be able to benefit from the 14% business asset disposal relief rate (for 2025/26) if the sale forms part of a wider retirement for a trading business; however, if the property is held off balance sheet and the business is charged a market rent, that would adversely affect the relief.
It is possible that income tax might be an issue with selling land and buildings; whilst on most occasions land and buildings will be capital assets and subject to CGT, if they are stock in trade (such as with a property developer) the resulting profits will be subject to income tax or corporation tax; the same might be said for someone who makes a habit of buying, developing and selling on properties as part of the ‘badges of trade’ test.
In addition, there are ‘transactions in land’ rules (in ITA 2007, Pt 13, Ch 3; CTA 2010, Pt 18), first written in Finance Act 1965 but expanded considerably in Finance Act 2016, where the land was acquired or developed with the main purpose (or one of the main purposes) of realising a profit on disposal. These rules can also be applied to what HMRC call ‘slice of the action’ contracts whereby a transaction can essentially be split into capital and revenue treatment; future contingency payments from property developers would be regarded as income with the owner treated as having ‘a slice of the action’ (i.e., of the property development profits, as opposed to deriving from the land as a capital asset).
Practical Tip
Land and buildings are subject to tax at almost every turn, so specialist advice should be sought before real property is bought and before it is sold.
