HMRC SDLT: SDLTM07800 – Scope: When is Stamp Duty Land Tax (SDLT) chargeable: Contracts and substantial performance: Substantial performance prior to completion FA03/S44(4) & FA03/S44A(3)
Stamp Duty Land Tax (SDLT) Chargeability
This section of the HMRC internal manual explains when Stamp Duty Land Tax (SDLT) becomes chargeable, focusing on contracts and substantial performance prior to completion under FA03/S44(4) and FA03/S44A(3). Key principles include:
- Understanding the criteria for SDLT chargeability on property transactions.
- Defining ‘substantial performance’ in the context of property contracts.
- Explaining the implications of substantial performance occurring before contract completion.
- Clarifying the legislative references FA03/S44(4) and FA03/S44A(3) regarding SDLT.
Understanding Stamp Duty Land Tax (SDLT) and Substantial Performance
What is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax (SDLT) is a tax that you may need to pay when buying property or land in England and Northern Ireland. The amount you pay depends on the price of the property and other factors. This tax is paid to HM Revenue & Customs (HMRC).
When is SDLT Chargeable?
SDLT is chargeable when certain conditions are met regarding property transactions. One important aspect to understand is the idea of “substantial performance” of a contract before the actual completion of the transaction.
Substantial Performance Explained
Substantial performance occurs when the main obligations of a contract are carried out before the transaction is officially completed. This can happen in various property deals, such as:
– Transferring a freehold property
– Assigning an existing lease
– Granting a new lease
When substantial performance happens, both it and the final completion of the transaction are important events that must be reported to HMRC.
Notification Requirements
If a contract for property sale is substantially performed before completion, you must notify HMRC of this substantial performance. Additionally, when the actual completion occurs, this must be reported as well. Each of these events may have separate implications for SDLT.
Changes Between Substantial Performance and Completion
If there are any adjustments made between the time of substantial performance and the eventual completion, a further tax return is required. This return is necessary if the changes affect the amount of tax owed.
– For instance, if you initially agreed to purchase a property for £250,000 but then negotiated a lower price or made adjustments that impact the value of the property during this period, you would have to submit a further tax return to reflect the new amount of tax due.
Further Return Requirements
To understand what you need to include in your further return, you can refer to the guidance provided in SDLTM50250. This document outlines in detail the specific information and documentation required when submitting a further return based on changes that occur after substantial performance.
Contracts for Granting New Leases
If your contract involves the agreement for a new lease, and substantial performance occurs, special guidelines apply. You need to be aware of how SDLT is treated in such cases, which can be found in the document SDLTM50260.
Key Points to Remember
– Substantial Performance: This is when you have acted on the contract significantly before it is completed.
– Notification: You must inform HMRC if substantial performance occurs, and again when completion happens.
– Further Returns: Submit a further return if there are changes to the property or agreement between substantial performance and completion that affect the SDLT.
Examples of Substantial Performance Scenario
Consider a few examples to clarify how substantial performance and the associated reporting work in practice.
Example 1: Freehold Sale
1. You sign a contract to buy a house for £300,000.
2. You move in and start renovations before the deal is completed; the house is now substantially performed as you are using the property.
3. If, in the meantime, the seller agrees to a new price of £290,000, you must notify HMRC of this change by filing a further return.
Example 2: Lease Assignment
1. You sign a contract to take over an existing lease of a commercial property.
2. You start operating your business from the property, indicating substantial performance of your lease agreement.
3. If the rental terms change before the completion of the lease assignment, you would need to submit a further return to account for possible changes to SDLT due to the revised rental terms.
Example 3: Granting a New Lease
1. You agree to a new lease that allows instant access to the property for renovations.
2. If you start the renovations before the lease is formally completed, substantial performance has occurred.
3. Any changes to the lease conditions or terms before completion would require you to check the guidelines in SDLTM50260 for further return requirements.
Consequences of Failing to Notify HMRC
If you do not notify HMRC of substantial performance or changes that affect the amount of SDLT due, you may face penalties. It’s crucial to meet all reporting requirements accurately and on time to avoid complications.
Penalties for Non-Compliance
– Failing to report substantial performance or not filing the required further returns can lead to financial penalties.
– You may also have to pay interest on any unpaid tax amounts.
Resources for Further Information
If you require more detailed information or have specific queries about your SDLT obligations, the following resources from HMRC can help:
– Check SDLTM07800 for guidance on the scope of SDLT and the chargeability rules.
– Use SDLTM50250 for information on changes after substantial performance.
– Consult SDLTM50260 regarding new leases and how SDLT applies.
By following these guidelines, you can ensure that you meet your SDLT obligations correctly and avoid any potential issues with HMRC. Remember, keeping thorough records and understanding your responsibilities when it comes to substantial performance in property transactions is essential for compliance.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM07800 – Scope: When is Stamp Duty Land Tax (SDLT) chargeable: Contracts and substantial performance: Substantial performance prior to completion FA03/S44(4) & FA03/S44A(3)
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