HMRC SDLT: SDLTM04060 – Scope: how much is chargeable: non-cash consideration: construction or similar works FA03/SCH4/PARA10

Principles and Concepts of Non-Cash Consideration in Construction

This section of the HMRC internal manual provides guidance on the scope of chargeable amounts for non-cash consideration in construction or similar works under FA03/SCH4/PARA10. It outlines the principles and concepts involved, focusing on the valuation and tax implications.

  • Understanding non-cash consideration in construction projects.
  • Guidelines on how to assess chargeable amounts.
  • Tax implications of non-cash consideration.
  • Valuation methods for non-cash consideration.

Understanding Chargeable Consideration in Land Transactions

When buying land, the price you pay may not be the only consideration involved in the transaction. A buyer might also agree to carry out construction, improvement, or repair work on a building or structure. This guidance looks at when such works are considered chargeable for Stamp Duty Land Tax (SDLT).

What Counts as Chargeable Consideration?

Not all construction works will count as chargeable consideration for SDLT. For works to be excluded from chargeable consideration, certain conditions must be met:

  • The construction works must take place after the effective date of the land acquisition.
  • The works must be done either on the land being purchased or on other land that the buyer owns or is connected to.
  • There must be no requirement for the seller (vendor) to perform these works on behalf of the buyer as part of the transaction.

If all three conditions are met, the construction works are not included in the calculation for SDLT. However, if any of these conditions are not satisfied, the value of the works is treated as chargeable consideration based on what they would be worth in the market.

Special Circumstances for Notification

There are situations in which you must submit an SDLT1 form both at substantial performance and upon completion of the transaction. If the first notification meets the first condition above, it will still apply during the second notification.

This is outlined in FA03/SCH4/PARA10(2A). It ensures that if the conditions for not counting construction works as chargeable consideration are fulfilled at the first stage, they will remain valid when the transaction is completed.

How to Determine Open Market Value

For instances where construction works count towards chargeable consideration, it is essential to calculate their open market value. Guidance on valuing these works can be found in SDLTM04140.

Examples of Chargeable Consideration and Non-chargeable Works

To clarify how chargeable consideration works regarding construction and similar activities, here are a few examples. These examples illustrate different situations under which works may or may not be chargeable:

Example 1: Purchase and Renovation

A buyer is purchasing a property and agrees to renovate the kitchen after the purchase. The agreement states that the renovation will not start until after the completion date. In this scenario:

  • The renovation works are not chargeable consideration because they occur after the effective date.
  • The buyer owns the property and is not requiring the seller to perform the work.

Example 2: Immediate Repairs

In another scenario, a buyer purchases a property that requires immediate significant repairs. The seller agrees to carry out the repairs before completing the transaction. In this case:

  • The repair costs would be considered chargeable consideration because the seller is obliged to take action before completion.
  • Condition three is not met, so the costs must be included in the SDLT calculation.

Example 3: Construction on Other Land

A buyer acquires a piece of land that they plan to develop. As part of the deal, they agree to build a new structure on an adjacent piece of land that they also own. Here, the works are:

  • Not chargeable consideration, as the construction will occur on land owned by the buyer.
  • The works can be done after the land transaction is completed, thus meeting condition one.

Example 4: Future Developments

A buyer purchases land with the intent to develop it further. The agreement notes that the buyer will undertake landscaping and additional building works after the purchase. The situation unfolds as follows:

  • If the landscaping happens post-transaction, it would not contribute to chargeable consideration since the construction occurs after the effective date.
  • The buyer is responsible for the works and is not relying on the seller to complete any part of it, satisfying the conditions set out.

Further Guidance and Information

For additional details on valuing construction or similar works, refer to SDLTM04140 for insight on how to calculate open market value effectively. More examples can be viewed on pages SDLTM04060a, SDLTM04060b, and SDLTM04060c, which provide further scenarios illustrating how these rules are applied in practice.

Understanding when construction works are classified as chargeable consideration is essential for correctly assessing SDLT liabilities. By raising awareness of the criteria that exempt certain works from being included in the consideration calculations, buyers can better prepare for their land transactions and ensure accurate submissions regarding SDLT.

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Written by Land Tax Expert Nick Garner.
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