An accountant once said to me, “It is unusual to find a conveyancing lawyer who knows about tax.” I replied that I was a tax lawyer who knew how to do conveyancing!
In today’s increasingly specialised world, practitioners specialising in one discipline often know little or nothing about other areas of law, and this can bring with it the risk of missing a trick or two. For example, many firms these days simply make it clear in their conveyancing Retainer that advising on the tax consequences of the proposed transaction is excluded, and if asked why simply say, “Talk to an accountant.” I wonder how many clients actually do this, especially if they do not already know one. It is dangerous to dabble in areas of law where one is not fully conversant, but if a conveyancer is able to outline why their client ought to talk to an accountant – and maybe recommend one, the client may be more likely to do so, and less likely to complain when a tax penalty comes in if they did not. Ignorance may not be so blissful after all…..
Probably the two pieces of tax law conveyancers will most likely have come across are Principal Private Residence Relief (PPR) from Capital Gains Tax (CGT) and that transferring an investment property into joint names with a spouse prior to sale can split the CGT bill and gain an extra annual exemption.
Looking more closely at the former, if a client is lucky enough to be able to carve a building plot out of their half-acre back garden which is within the “permitted area” for PPR, and decides to sell the house and plot separately, I always used to make sure that the plot was sold first, because if the house is sold first, there is no PPR available against the later sale of the plot. And remember the disposal for CGT occurs on exchange of contracts, not on completion. If the two lots were to be offered by auction, I used to instruct the auctioneer to offer the plot first, and if it failed to reach reserve, to withdraw the house and explain why.
Turning to the second point, the sale of a property that was once, but no longer is, the client’s PPR leads to a complicated calculation to apportion the gain between the times it was (CGT exempt) and when it was not (CGT to pay). Beware here simply transferring a former PPR into the joint names of the client and spouse to hold equally, because the spouse will not acquire PPR for the time they lived in the property if the transfer into joint names only takes place after they have moved out. There may however be some benefit in transferring say a small share to make use of the other spouse’s annual CGT exemption – £12,300 in 2020/21. In other words there is more to it than readily meets the eye.
Some changes in the CGT rules pertaining to the sale of residential property came in on 6th April 2020, the most important of which is that instead paying CGT on the 31st January following the end of the tax year in which the disposal took place, the gain must be reported to HMRC and the tax paid on it within 30 days of completion of the sale. Sales of other assets such as farmland do not appear to be affected –yet – so exchanging a non-residential property on April 10th rather than April 4th to complete on April 30th would still appear to enable the tax bill to be delayed by 12 months. Enough time for your client to put the tax money into premium bonds and win a few prizes…
Clients will most likely be unaware of the urgency of the matter, so may well appreciate the advance warning from their conveyancer as soon as the instruction to act comes in, especially if they have always done their own self-assessment income tax return on the buy-to-let they are now selling.
In conclusion, clients are far more likely to take up the suggestion of talking to an accountant if the conveyancer can outline why it may be worthwhile – and even recommend an accountant. That in turn could generate reciprocal business. I am sure that my working knowledge of the tax laws that were in force when I was practising led accountants to recommend their clients to me when there was property to sell.
NB This article is intended only to illustrate the points covered, not to provide comprehensive advice on them