HMRC SDLT: SDLTM04120 – Scope: How much is chargeable: Non-cash consideration: Indemnities given by the purchaser FA03/SCH4/PARA16
Non-cash Consideration: Indemnities by the Purchaser
This section of the HMRC internal manual discusses the scope of chargeable amounts under FA03/SCH4/PARA16, focusing on non-cash considerations, specifically indemnities given by the purchaser. It outlines the principles and concepts involved in determining the chargeable amount.
- Explains the legal framework for non-cash consideration.
- Details how indemnities affect the chargeable amount.
- Provides guidance on the application of FA03/SCH4/PARA16.
- Clarifies the responsibilities of the purchaser in providing indemnities.
Read the original guidance here:
HMRC SDLT: SDLTM04120 – Scope: How much is chargeable: Non-cash consideration: Indemnities given by the purchaser FA03/SCH4/PARA16
Understanding Non-Cash Consideration in Stamp Duty
Introduction to Chargeable Consideration
When you buy a property, you usually need to pay Stamp Duty Land Tax (SDLT). The amount of SDLT you owe is based on the total price you pay for the property, which is known as ‘chargeable consideration.’ In some cases, what you offer in exchange for the property may not solely be in cash.
What Counts as Chargeable Consideration?
In general, chargeable consideration is the total value of everything you provide to obtain the property. This can include:
– Cash payments made to the seller.
– Any debts you take on as part of the purchase.
– Certain other assets you might exchange as part of the deal.
However, not all commitments or agreements you have are considered chargeable. One important point to note is the nature of indemnities given by the purchaser.
Indemnities Explained
An indemnity is an agreement where one party protects the other from any potential loss or liability. In the context of purchasing property, if you as the buyer give an indemnity to the seller, it means you are agreeing to cover certain liabilities related to the property.
For example, suppose a buyer agrees to cover ongoing lease obligations that the property seller still needs to take care of. This kind of indemnity is often linked to agreements regarding property leases and could involve various liabilities like repairs or management duties outlined in the lease.
Are Indemnities Part of Chargeable Consideration?
The key point regarding indemnities is straightforward: indemnities that the purchaser gives to the vendor for ongoing liabilities connected to the land are not treated as chargeable consideration. This means that even though you may promise to cover certain costs, this promise does not increase the amount of SDLT you need to pay.
For instance, if you agree to pay the seller’s obligations under a lease when you buy a property, that agreement does not add to the purchase price for SDLT purposes.
How Indemnities Work in Practice
Let’s look at an example for clarity:
– A property has a selling price of £300,000.
– The buyer also agrees to indemnify the seller for ongoing lease obligations valued at £20,000.
When calculating the SDLT, only the purchase price of £300,000 is counted. The £20,000 indemnity will not be included in the calculation of chargeable consideration, so the SDLT is calculated solely on the £300,000.
Relevant Legislation and Guidance
This guidance comes from the Finance Act and specifies that in certain sections, specifically FA03/SCH4/PARA16, only actual monetary transactions or property exchanged that affect the market value will be considered chargeable.
The regulations state:
– Indemnities covering ongoing liabilities do not count as additional consideration.
– This rule helps provide clarity and certainty in property transactions, ensuring buyers are not penalised for accountabilities they assumed post-purchase.
Additional Considerations for Buyers
As a buyer, it is essential to understand the implications of non-cash agreements like indemnities in your property transactions. Here are a few points to keep in mind:
– Be aware of the liabilities you are taking on through indemnities and how they may affect your finances.
– When preparing to buy a property, consider getting professional advice if indemnities are part of the transaction to ensure you understand their implications thoroughly.
– Remember to document any agreements made about indemnities, as they can affect the future handling of the property and potential disputes.
Conclusion About Non-Cash Consideration
Understanding how non-cash elements like indemnities work can help you navigate SDLT responsibilities more effectively. By being informed of what counts as chargeable consideration, you can manage your property purchases better and avoid unexpected costs.
Whether you are a first-time buyer or a seasoned property investor, being aware of how indemnities are treated in relation to SDLT is an important aspect of the purchasing process.
For more detailed explanations and further guidance, you can refer to the full HMRC guidance on SDLT and related topics.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM04120 – Scope: How much is chargeable: Non-cash consideration: Indemnities given by the purchaser FA03/SCH4/PARA16
If you think you’ve paid too much stamp duty, I might be able to help you reclaim it.
