Part1:Corporationtax
Part2:Incometax
Part3:PAYEandNIC
Part4:Capitalgainstax
Part5:Inheritancetax
55000Generalprinciples
56000Lifetimetransfersofvalue
57000Transfersondeath
58000Nationalheritageproperty
59000Reliefs
61000Overseasissues
62000Anti-avoidancemeasures
63000Administration
65000Generalprinciples
Part6:Trusts,settlementsandestates
66000Taxationofestates
67000Incometaxandtrusts
68000Capitalgainstaxandtrusts
69000Inheritancetaxandtrusts
71000Overseastrusts
72000Administration
75000Firstprinciples
76000RegisteringforVAT
77000Supplies
79000Inputtax
81000RoutineVAT
82000Specificsituations
Part7:Valueaddedtax
83000Specialaccountingmethods
84000Landandbuildings
85000Cross-bordertransactions
87000Administration
90000Stampdutylandtax
93000Stampduty 94000Stampdutyreservetax
Part8:Stamptaxes
Part9:Harmonisedtaxadministration
95000Scopeofharmonisation
96000Penalties
97000Powersandprocedures 98000Otherreforms
99000Appendix 99990Tableofcases Index
Generalinformation
ThefollowingdecisiontreeisusefulwhendecidingwhetheraneventcreatesaPAYE liability:
Notionalpayments
Anemployeewhoreceivessharesotherthanunderatax-advantagedscheme(including options)willbetreatedasreceivinganotionalpaymentwhichisliabletoPAYE. WherethereisinsufficientincomefromwhichtodeductthenecessaryPAYEforthe particularpayinterval(¶40155),theemployermustpaytheextraPAYE,andthenrecoverit fromtheemployee.TheemployeemustmakegoodtheextraPAYEwithin90daysafterthe endofthetaxyearinwhichthenotionalpaymentistreatedasmade.Ifnot,additional incometaxandNICwillbedueontheextraPAYEpaidbytheemployer,whichitself effectivelybecomestaxableincomeoftheemployee.
EXAMPLE MrCreceivessharesfromhisemployeron1SeptemberandisliabletorelatedPAYEof £5,000.Hisnormalsalaryis£3,000permonth,whichleavesashortfallof£2,000astheusual50% limitonPAYEdeductions(¶40510)doesnotapplyhere.
MrCreimburses£2,000tohisemployeron5May,withinthe90-daylimitaftertheendofthetax year,andsonoothertaxchargesarise.
However,ifMrConlyreimbursedhisemployeron8July,outsideofthe90-daylimit,the£2,000 itselfwouldbedeemedtobeemploymentincome,withincometaxandNIC(atindicativerates) dueasfollows(assumingheisahigherratetaxpayer).Hewouldneedtodeclarethisincomeonhis self-assessmenttaxreturn.
5.Highincomechildbenefitcharge(HICBC) TofallwithintheHICBC’sscope,therearetwoconditionswhichmustbesatisfied,both lookingatdifferentperiodsoftimeandpotentiallydifferenttaxpayers:
a.someoneinthefamilyunitreceiveschildbenefitforatleastoneweekinthetaxyear. Therecipientmightbethetaxpayer,theirpartner,orathirdpartywhocontributestothe welfareofachildlivingwiththetaxpayer(e.g.anex-partnerwholiveselsewhere);and b.theclaimantortheirpartnerhasadjustednetincome(¶36340)inthetaxyearofmore than£60,000for2024/25(2023/24:£50,000).
MEMOPOINTS 1.Partnersforthispurposemeanspersonswhoareeither: –married,orlivingtogetherasiftheyweremarried;or –civilpartners,orlivingtogetherasiftheywerecivilpartners.
2.Ifthechildisnotlivingwiththeclaimantandtheclaimantisnottaxableonthebenefit,the personwithwhomthechildlivesbecomesliableiftheiradjustednetincomeexceeds£60,000.
3.ChildbenefitentitlementisnotamatterdealtwithbyHMRC.Anagentortaxadvisortherefore needsaseparateformofauthorityinordertodealdirectlywiththeChildBenefitOffice.Aform CH995hasbeenpublishedforthispurposeandisavailableonlineattiny.cc/tm30490.
4.Benefitsarisingafterthedeathofthechildareignored.
Practicalimplications
Whereeitherindividualinacouplehasadjustednetincome: –below£60,200,noHICBCwillariseduetotheroundinginthecalculation;or –ofatleast£80,000,thefullamountofanychildbenefitclaimedwillbewithdrawnbythe HICBC.Inmanycases,parentschoosetooptoutofchildbenefitpayments(¶30498).
OneofthecommonissuesaffectinghigherpaidemployeesisignoranceoftheHICBC, especiallyforthosewhoonlypaytaxunderPAYEandhavehadnopreviousneedtonotify liabilitytoincometaxorindeedanyspecificinteractionwithHMRC.
Unfortunately,discoveryassessmentsareviableinrespectofcaseswhereachildbenefit claimanthasfailedtonotifyliabilitytoHICBC.Thisstatutorychangewasintroducedwith retrospectiveeffectbutexcludingthosewhosubmittedarelevantappealtoHMRConor before30June2021.
EXAMPLE
1.HMRCraiseddiscoveryassessmentsinrespectoftheHICBCeventhoughthetaxpayerdidnot submitaself-assessmenttaxreturnfortheyearsinvolved.
ItwasheldthatastheHICBCisnotincomewhichoughttohavebeenassessedtoincometax,it isoutsidethescopeofanydiscoveryassessment(beingafreestandingcharge)underthelawas itstoodatthetime.HMRCvWilkes[2022]
2.InanappealagainstapenaltyfornotnotifyingtheHICBC,itwasheldthatthetaxpayerhada reasonableexcusedefence.EventhoughHMRChadsentanudgeletter,thetaxpayerstatedhe hadneverreceiveditandthereforewasneverspecificallyinformedaboutthepossibilityofthe charge.Goodall[2023](TC08680)
3.ThetaxpayerwastoldbyHMRCthathecouldnotappealadiscoveryassessment.Asaresult, hemissedthecrucialdateof30June2021.
Itwasheldthathehadbeenmisdirected.Asaresult,thejudgeadvisedHMRCtotreatthetaxpayer asifhehadmadeavalidappealbeforethedeadline.Kensall[2023](TC08673)
4.Ataxpayerwasunawarethathispartnerwasalreadyclaimingchildbenefitinrespectofachildfrom apreviousrelationship.TheymaintainedcompletelyseparatefinancesandwerebothwithinPAYE.When aHMRCnudgeletterabouttheHICBCwasreceivedin2019,hepassedittohispartnerwhorangHMRC tocancelherchildbenefitclaim.Bothindividualsthoughtthatwastheendofthematter.
However,HMRCsubsequentlyraisedHICBCassessmentsonthetaxpayerfor2016/17to2019/20 whenhistaxableearningsexceededthethresholdof£50,000.
ItwasheldthatthetaxpayerhadareasonableexcusefornotdeclaringtheHICBC,ashewas unawareofhispartner’sfinancialpositionandhadnotbeencareless,whichhadthefollowing results: –thepenaltiesforfailuretonotifywerecancelled;and –theassessmentsfor2016/17and2017/18wereoutoftime.Lee[2023](TC08872)
5.Ataxpayerhadfailedtoregisterforself-assessmentdespitereceivingchildbenefitandearning incomeinexcessof£50,000inseveraltaxyears,soHMRCraisedassessmentsforHICBC. However,althoughanofficerofHMRCwasidentifiedasthepersonwhohaddiscoveredthelapse, hewasnotnamedontheassessmentswhichwereissuedbytheHICBCteam. Itwasheldthatastheofficerwhomadethediscoverymustissuetheassessment,allthe assessmentswereinvalid.Thetaxpayer’sappealwasallowedinfull.Brown[2024](TC09914)
Sch9paras125,126 FA2024
Sch9paras125,127 FA2024
D.Schemesize
Between6April2006and5April2023,therewasanupperlimitonthetax-advantagedlevel offundingimposedbythelifetimeallowance.Whilethelifetimeallowancetechnicallystill appliedin2023/24,andlifeallowancechecksstillneededtobecompleted,nospecifictax chargewasleviedonexcesspensionbenefits.
CommentTheremovalofthelifetimeallowancemayonlybetemporary.Those individualswithwell-fundedpensionschemesshouldtakeprofessionalfinancialadvice whenconsidering: –rejoiningtheiremployer’sscheme; –restartingcontributions;or –thedateofretirement.
Whatevertheincometaxconsequences,itshouldberememberedthatapensionscheme isausefulshieldfromIHT.
1.2024/25onwards
From6April2024,thelifetimeallowanceisabolished.Insteadofalimitonthepension funds,therearespecifiedlimitsonlumpsumbenefits(¶30912+)only.Allbenefit crystallisationeventsrelatingtotakingincomeandtheage75testareremoved.
Takingbenefitsin2024/25
Whilethepreviousregimereliedonthelimitingfactorofthelifetimeallowance,thishad theunintendedimpactofdiscouraginganycontinuationofworkforthosenearing retirementage.
From6April2024,onlylumpsumbenefitsmustbecheckedagainstthetax-freeallowances asshowninthetablebelow.Eachlumpsumwillreducetheallowancesavailableforfuture benefits.Theseamountswillalsobedependentonanytransitionalprotections(¶31100+) andwhetheranybenefitshavealreadybeentakenbefore6April2024.
MEMOPOINTS 1.Thereisnoprovisioninthelegislationfortheupratingoftheseallowancesto takeaccountofinflationetc
2.Everytimealumpsumistaken,thisisofficiallyknownasarelevantbenefitcrystallisation event
3.Fortheoverseastransferallowance,see¶31358.
Benefitsalreadytakenbefore6April2024
Anybenefitstakenbefore6April2024willreducetheavailableLSAandLSDBA Ifanylifetimeallowancewasunutilised,theLSAwillbereducedby25%ofthelifetime allowanceused.Wherenolifetimeallowanceremainsat6April2024,noLSAwillapply
However,itmightbebeneficialforthetaxpayertoapplyforacertificatetoconfirmthe previousamountspaidouttaxfreeasthiscouldresultinanimprovedLSAi.e.wherethe tax-freeportionwasactuallylessthanthedefaultcalculationof25%(¶30995).
CommentAsthelegislationiscomplex,itisvitalpensionmembersobtainexpert financialadvice
EXAMPLE By6April2024,MrAhasused40%ofhislifetimeallowanceof£1,073,100.
Calculation
Whereanindividualhasaself-employmentandisalsoemployed,thefollowingexample showsthestepswhichshouldbefollowedinordertocalculatethemaximum contributionsdue
EXAMPLE MrCisemployedandearns£44,000.Heisalsoself-employed,withprofitsof£60,000. MrCwillhavepaidthefollowingNICin2024/25: Employment-Class1
Self-employment Class4
ThemaximumNICliabilityforMrCiscalculatedasfollows:
Step1:Calculatethenotionalmaximum
Step3:CalculatetheamountofClass1 paidat8%:
Asthisresultifnegative,thisstepistreated asnil
Step4:MultiplyStep3by100/6
Step5:Subtractthelowerprofitslimitfrom theupperprofitslimit,ortheactualprofits ifthisislower:
Step6:SubtractStep4fromStep5 37,700-Nil
Step7:Take2%ofthefigureinStep6 37,700@2%
Step8:Calculatetheamountbywhichthe profitsexceedtheupperprofitslimitand take2%
Step9:AddSteps3,7and8toobtainthe maximumClass4liability
Step10:AddintheClass1NICdue: Class4perStep9
MrCwillthereforebeduearefundof£1,508.(4,971.00-3,463.00)
SI2001/1004 reg100; NIM24175,24176
CHAPTER5 RoutineVAT
ThischaptercoversthebasicVATcompliancerequirementsforrecord-keeping,aswellas someofthesimplificationoptions.ForfurtherdetailandanalysisseeVATMemo
TheVATliabilityofconstructionservices,andsuppliesinthecourseofrefurbishment, reconstruction,repairandmaintenance,dependsonthetypeofbuildinginvolvedandin somecasesonthecustomer
ThefollowingtablesummarisestheVATliabilityofcommonsupplies:
Property involved Typeofsupply Details
New buildings
Suppliesinthe courseof construction
Supplies involvingthe property
Landand existing buildings Workscarried outonthe property
Commercialproperty(less than3yearsoldtobe“new”)
Domesticproperty1
Freeholdsalesofcommercial propertylessthan3yearsold
¶84225
¶84230+
¶84430
Grantofleaseorother interestincommercial property Exempt,unlessoption totaxapplies2 ¶84650
Firstsaleorgrantoflong leaseindomesticproperty1 Zero-rated ¶84435
Suppliesinthecourseofthe conversionofa non-residentialpropertytoa residence
Suppliesforaresidential conversionwhencustomeris ahousingassociation
Suppliesforthe refurbishmentofempty premisestoprovidea residence
Supplies involvingthe property
¶84585
¶84590
¶84600
Constructionservicestoalter aprotectedresidential building Standard-rated ¶84610
Chargingfortheprovisionof: –sleepingaccommodation; –parkingspaces;and –seasonalpitchesfortents andcaravans
¶84645
Freeholdsalesofcommercial property3yearsoldormore Exempt,unlessoption totaxapplies2 ¶84690
Leaseofcommercial property Exempt,unlessoption totaxapplies2 ¶84650
Saleoffreeholdindomestic property1 Exempt
Leaseofdomesticproperty1 Exempt
Firstsaleorlongleaseofa convertedresidence
Firstsaleorlongleaseofa substantiallyreconstructed protectedresidence
¶84720
¶84725
Note:
1.Forthispurpose,domesticpropertymeanseither: –abuildingdesignedasadwelling; –apropertyusedorintendedtobeusedforarelevantresidentialpurpose;or –apropertyusedorintendedforusebyacharityfornon-businesspurposes.
2.Itispossibletoopttotaxanon-domesticpropertysothatanyfuturesuppliesrelatingtothatpropertyare standard-ratedratherthanexempt.Forfurtherdetailssee¶84755.
Calculationofthecharge
TheSDLTcalculationisdeterminedbyreferenceto:
a.theeffectivedateofthetransaction; b.theconsiderationpaid;and
c.whethertheusemadeofthepropertyisresidentialinwhichcasetherearefurther criteriainvolving: –naturalornon-naturalpersons;and –thepurchaser’sresidency
Specialrulesapplyfor: –linkedtransactions(¶90830); –aseriesoftransactionswhichresultinareducedSDLTcharge(¶90860);and –transactionswheretheconsiderationincludesrenti.e.leases(¶90900+).
MEMOPOINTS 1.ScotlandandWaleshavetheirownratesofLBTT(¶92260+)andLTT(¶92360+) respectively 2.WherealandtransactionissubjecttoacombinationofSDLT,LBTTand/orLTTthe considerationshouldbeapportionedonajustandreasonablebasistodeterminethecorrecttax payable(¶90090).
I.Saleandpurchase
TheratesofSDLTdifferdependingonthecircumstancesofthepurchaserandwhetherthe landisresidentialornon-residential.
A.Determiningthetypeofuse
Definitionofresidential
ForSDLTpurposes,residentialpropertyisdefinedas:
a.abuildingthatisusedas,orissuitableforuseas,adwelling,orisintheprocessof beingconstructedoradaptedforsuchuse;and b.landthatformspartofthegardenorgrounds,andanyoutbuildings.
MEMOPOINTS Undevelopedlandisessentiallynon-residentialbutmayberesidentialpropertyif, attheeffectivedate,aresidentialbuildingisbeingbuiltonit.
Dwellings
Thedefinitionofdwellingsincludesresidentialaccommodationfor:
a.schoolpupils; b.membersofthearmedforces; c.students(excludinghallsofresidence);and d.accommodationwhichisaninstitutionthatisthesoleormainresidenceofatleast90% ofitsresidentsexcluding: –children’shomes; –residentialinstitutionsforthecareofpersonswhoareold,disabled,haveadrugor alcoholdependency,orhaveapastorpresentmentaldisorder; –hospitalsorhospices; –prisons;
–hotels,innsorsimilarestablishments;and –studenthallsofresidence
MEMOPOINTS 1.Wheresixormoreseparatedwellingsarethesubjectofasingletransaction, thetransfersaretreatedasnonresidentialtransactionsforSDLTpurposes.
2.Notethatwheremultipledwellingsrelief(¶91610+)isclaimedthentheresidentialratesof SDLTapplytotheconsideration.Effectively,abuyercanchoosewhethertoapplythenon residentialratesorclaimmultipledwellingsreliefupuntil31May2024.
Whereabuildingisnotinuse,theuseforwhichitismostsuitablewilloverrideanyother. Apropertywhichisnotsuitableforoccupationasadwellingcannotbephysically habitable.
EXAMPLE
1.Asem-derelicthousewasfoundnottobe“suitable”foruseasadwellingasithadnoformof heating,oldelectrics,adatedkitchenandbathroom,andtherewasasbestospresent.PNBewley Ltd[2018](TC06951)
2.Incontrast,theUpperTribunalheldthatthesuitableforusetestdoesnotmean“readyfor immediateoccupation”andsodisrepairatthetimeofpurchase(heatingnotworking,damp problemsandflooringneededreplacing)didnotmeanapropertywasnotsuitableforuseasa dwelling.FianderandBrowervHMRC[2021]
3.Asimilarconclusionwasreachedinthecaseofavandalisedrodent-infestedpropertywithno utilitiesandrainwaterleakingintotheproperty.
Itwasheldthatthebarforapropertytobeunsuitableforuseasadwellingwassetveryhigh,and thatabuildingrecentlyusedasadwelling,capableofbeingsousedagain,andnotintheinterim adaptedforanotheruse,wasstilladwellingforSDLTpurposes.Mudan[2023](TC08777)
4.Defectivecladdingofabuildingdidnotrenderaflatunsuitableforuseasadwelling, notwithstandingtheGrenfelltowerdisasterandthe18monthsittookforremedialworkstobe completed.
Itwasheldthattorenderaproperty"unsuitable",defectsneededtobesufficientlyseriousthata reasonablepersonwoulddecideagainstoccupation.AflatwhichwasnotcompliantwithBuilding Regulationsdidnotmaketheflatunsuitableforuse,andneitherthelocalauthoritynorthefire authorityhadprohibitedoccupationoftheflat.FishHomes[2020](TC07666)
Gardenorgrounds
HMRCtakesintoaccountavarietyoffactorswhendeterminingwhetherlandformspartof thegardenorgroundsofadwelling,including: –theuseofthelandinrelationtothedwelling; –thelayoutofthelandandanyoutbuildings; –thephysicalproximityofthelandtothedwelling; –thesizeoftheland;and –anylegalconditions-whetherpublicorprivatelaw-thatinhibitorpermitcertainuses. LandfallingoutsideofthedefinitionofgardenorgroundswillbetreatedasnonresidentialandpotentiallybenefitfromthelowerSDLTrates.Inevitablythishasledtoa numberofcasesinvolvingresidentialpropertieswithextensivegrounds.
EXAMPLE
1.Inonecase,thetaxpayersacquiredafarmhousewith3.5acresofland,includingabarn housingatractor,afieldandpublicbridleway.ASDLTrepaymentclaimwassubmittedonthe basisthepropertywasmixeduse.Inajoinedcase,asixbedroomhousewassetin4.5acresof landwithastableyard,garageandpaddocks. TheCourtofAppealruledthatlandcanstillbe“gardenorgrounds”forSDLTpurposesevenifitis ofsuchasizethatforCGTpurposesitwouldnottoberequiredforthereasonableenjoymentofthe dwelling(¶51960).Thereforetheentiretyofbothpropertiesandsurroundinglandwereclassedas residentialforSDLTpurposes.HymanandanothervHMRC;GoodfellowandanothervHMRC[2022]
2.AtaxpayerhasalsobeenunsuccessfulinarguingthataleaseholdinterestinaLondonflatwas misclassifiedasresidentialbecauseitgavearighttoaccessacommunalgarden.Sexton[2023] (TC08708)
3.TheFirst-tierTribunalhasheldthatadwelling-houseandanindependentannexe,surrounded byapproximately39acresofgardens,fields,andwoodlands,wasmixeduseproperty. Inparticular,thecommercialgrazinglandandwoodlandsubjecttoa“rewilding”agreementwith
90570
theWoodlandTrustwerenotgardensorgroundsofadwellingastheydidnotsupporttheuseof adwelling.Withers[2022](TC08649)
Note:HMRChasstatedthatitdoesnotagreewiththefindingsinthiscaseandthatitdoesnotset anylegalprecedent.
4.Thetaxpayeracquiredafarmhousewhichhadadjoiningfieldsandextensiveequestrian facilities.
TheFirst-tierTribunalstatedthatitwouldbesufficientifitcouldbeshownthatatleastoneofthe fields,orindeedjustpartofone,didnotformpartofthegroundsofthefarmhouse.However,the fieldsprovidedanamenityfortheenjoymentofthedwellingandsoproperlyformedpartofthe farmhouse’scurtilage.Holding[2024](TC09141)
5.Aluxurypropertypurchaseincludedanadjoiningpaddockwhichhadaseparateregistered title.Onthedayofpurchase,butaftercompletion,thispaddockwaslettoaneighbourundera grazinglease.
TheFTTdecidedthepaddockwasnotpartofthegroundsforthefollowingreasons: –thepaddockcouldnotbeseenfromthedwelling; –theonlyaccessfromthepropertywasthroughasmallgate; –thepaddock'sseparatetitle;and –thelackofintegrationofthepaddockwithintheremitoftheproperty.
TheUpperTribunalagreed,statingthattheFTT'sdecisionwasnot“rationallyinsupportable”. Commentingonthepost-completionlease,althoughthisprovidedevidenceoftheland'snature andcharacteratcompletion,itisverymuchthestateofthelandatthepointofthepurchase transactionwhichisrelevant.Astheleasedidnotexistatcompletion,itcouldnotbepersuasive whendeterminingtheland'sstatusforSDLTpurposes.HMRCvSuterwalla[2024]
Non-residentialproperties
Non-residentialpropertymeansanypropertythatisnotresidentialpropertyCommon examplesinclude: –shopsandoffices; –forestsandagriculturalland; –propertywhichisnotsuitabletobelivedin;and –sixormoreresidentialpropertiesboughtinasingletransaction.
90575
Amixedusepropertyisdefinedasonewhichincludesbothresidentialandnon-residential elements,suchasashopwithaflatabove.Thenon-residentialSDLTratesapplytothe entireconsiderationfortheproperty’sacquisition.
EXAMPLE Auniquepropertywaspurchasedwhichhadthefollowingseparatelyregisteredtitles:
a.asemi-detachedhousewithgardens;and
b.adjoininglandwithabuildingcalledthe“OldSummerHouse”whichhadbeenpreviouslyused asagarageandanartist’sstudio.
Inabidtoensureamixed-usetransaction(asaresultofprofessionaladvice),acoupleofweeks beforethepurchase,a6-monthleasefornon-residentialoccupation(enforcedbyacovenant)of theSummerHousewasgrantedbythevendorstoaphotographybusiness.Theissuewaswhether theSummerHousewassuitableforuseasadwelling.
Ithadpreviouslybeenheldthatthebuildingwasnotresidentialbutfellwithinthescopeoftheantiavoidancerule(¶90860)sotheleaseshouldbeignored.ThereforetheSummerHouseremained aresidencebuttheentirepurchasewaspotentiallyeligibleformultipledwellingsrelief(MDR).
TheUpperTribunalheldthattheanti-avoidanceruledidnotapplyastheleasehadnoeffectonthe amountofSDLTdue.ThelegalconstraintsontheuseoftheSummerHousewerecontradictory: thecovenantbanningresidentialuseontheonehand,withit’sutilisationasastudioconstitutinga breachofplanningcontrollawsontheother.Asthephysicalcharacteristicsofthebuildingshould begivenmoreweight,itwasphysicallysuitableforuseasadwellingandsotheentirepurchase wasofaresidentialproperty.Onanotherpoint,MDR(¶91610+)wasnotduebecausenoclaimhad everbeenmadeonareturn.HMRCvRidgway[2024]
