April 9, 2021
Our April 2021 summary of the latest developments in Property law and practice is as follows:
VAT - Reverse Charge
From 1 March 2021, those supplying construction services to a VAT-registered customer will no longer have to account for the VAT. Instead, the customer to whom the service is supplied will account for it, paying the VAT directly to HMRC. It is a measure aimed at reducing VAT fraud in the construction sector.
The VAT ‘reverse charge’ will only affect supplies at the standard or reduced rates where payments are required to be reported through the CIS. It doesn’t apply to non-VAT registered businesses or consumers, or to supplies made to end users and intermediary suppliers. This would cover, for example, a builder supplying building services to a contractor who is constructing a commercial building for the landowner. The change is a matter of VAT accounting. Ordinarily, a builder would invoice the contractor for the cost of building works supplied plus VAT (and the contractor would separately invoice the landowner for its supplies plus VAT). Instead, the builder would simply invoice for the cost of its works without adding VAT, and the contractor would account to HMRC for both the builder’s output and its own input VAT incurred on the supply in its own VAT return.
Those affected will need to review contracts to see if the reverse charge rules apply, ensure customers’ VAT registrations and CIS numbers are checked, and will need their bookkeepers or VAT accountants to adjust VAT accounting practices. A useful guide can be found on the Government website.
Land Transaction Tax – Relevant Rent
The Land Transaction Tax (Specified Amount of Relevant Rent) (Wales) (Amendment) Regulations 2021 (SI 2021/119 (W32)) have increased the “relevant rent” from £9,000 to £13,500 for land transactions in Wales whose effective date is on or after 4 February 2021.
Where a commercial lease reserves a rent and charges a premium, both considerations are presumed to be subject to Land Transaction Tax. For commercial leases under LTT, where the rent exceeds the “relevant rent”, the nil-rate threshold for premiums is removed so that the premium is taxable. Previously, the annual rent had to be “at least” £9,000 for the non-residential nil-rate band under LTT to be removed when assessing duty on the premium. That level has now been increased to £13,500, meaning that more leases granted at a rent may be able to take the benefit of the £225,000 nil-rate threshold.
Business Rates – Empty Property Rates Relief (Wales)
In Wales, empty business properties are exempt from paying business rates for 3 months after the property becomes unoccupied. There are also additional exemptions for certain types of industrial premises, which are exempt for a further 3 months.
If at any time the property is occupied for a temporary period of six weeks or more where full rates are paid by the occupier, this acts as a reset to the relief cycle arrangements, and the owner is eligible for another cycle of three or six months relief. There is no limit on the number of times an owner can claim future cycles of relief so long as the temporary occupation criterion is satisfied.
However, the six-week period is to be increased to 26 weeks in 2022 as an attempt to limit the misuse of the Empty Property Rates Relief. This is a year later than was originally proposed in a Welsh government consultation and is intended to give ratepayers sufficient time to prepare for the change.
The Land Registry has updated Section 13 of Practice Guide 8 on Execution of Deeds to clarify a number of points where an electronic signature is being used:
- Parties signing deeds electronically must use an online operating system or platform to manage the process. The Land Registry does not have a list of prescribed or approved providers.
- Where any of the parties to a transaction are unrepresented, electronic signatures will not be accepted (for any of the parties), except for limited exceptions.
- When a deed has been signed electronically, the conveyancer lodging the registration application must give a certificate confirming compliance with Land Registry execution requirements. The amendments confirm that this certificate will be taken to refer to the requirements on the relevant date, in case of subsequent changes. In addition:
- In a transfer, where the seller’s conveyancer has managed the signing process, the seller’s conveyancer may sign the certificate and pass it to the buyer’s conveyancer to submit, or the buyer’s conveyancer may sign the certificate (if it is satisfied of due execution).
- The Land Registry will rely on the conveyancer’s certificate. Any audit report or completion certificate issued by the platform must not be lodged (for data protection reasons) but should be retained.
Land Registry – Counterparts
The Land Registry has also updated Section 10 of Practice Guide 8 on Execution of Deeds to clarify its position regarding the use of counterpart deeds. Counterparts are being used more widely in today’s transactions, especially where a remote form of execution such as an electronic signing is being used (and possibly also with ‘Mercury’ signings).
They state that, where there is a counterpart “but the only disposition being made is by the signatory of the principal deed” then the counterpart(s) need not be lodged with the application for registration. Of course, in the case of leases, where there is an original and a counterpart, only the original lease needs to be lodged for registration.
It may also be that one party wishes to sign using a traditional “wet ink” method but another party wishes to sign electronically. LRPG 8 states that this is entirely acceptable provided that “in each case, the requirements set out in ‘Our requirements’ are observed”.
Land Registry – Expediting Applications
The Land Registry has published guidance on how to fast-track an application.
This is for use where a delay in a registration application would (a) cause problems not related to a land transaction; (b) put a property sale at risk, for example, a refinancing deal or development; or (c) hold up another transaction.
If the request is approved, the Land Registry states that, subject to any necessary requisitions, it aims to process the application within 10 working days.