HMRC SDLT: SDLTM09100 – Application and approach: Section 75A (1)

Principles and Concepts of Section 75A (1)

This section of the HMRC internal manual provides guidance on the application and approach of Section 75A (1) concerning tax regulations. It outlines the principles and concepts that govern this section.

• Section 75A (1) is part of the UK tax legislation.
• It addresses anti-avoidance measures in tax transactions.
• The section aims to prevent tax avoidance through complex arrangements.
• HMRC provides detailed guidance on interpreting and applying this section.

Understanding Section 75A of Stamp Duty Land Tax

When Section 75A Applies

Section 75A is a part of the rules surrounding Stamp Duty Land Tax (SDLT) and applies when certain conditions are met. Here’s a breakdown of when Section 75A comes into play:

• Disposal and Acquisition: One person, referred to as ‘V,’ gives up a chargeable interest. At the same time, another person, called ‘P,’ takes on that chargeable interest or a chargeable interest that comes from it.
• Multiple Transactions: There are several transactions happening together related to the disposal (V giving up the interest) and acquisition (P taking the interest). These related transactions are called ‘the scheme transactions.’
• SDLT Payable: The total SDLT owed from all these scheme transactions is less than what would have been charged if V simply sold the chargeable interest to P in a straightforward transaction.

It’s crucial to consider these three points together when deciding if Section 75A applies.

Understanding Key Terms

To grasp Section 75A, it helps to understand a few key terms:

• Land Transaction: This refers to any situation where a chargeable interest is acquired. In simple terms, it’s about transferring ownership or rights to property. For more details on what exactly constitutes a land transaction, visit SDLTM00270.
• Acquisition: This term is outlined in Section 42 and describes the act of obtaining a chargeable interest. Click on SDLTM00270 for additional information.
• Chargeable Interest: According to Section 48, a chargeable interest is a type of interest in land that can be subject to SDLT. For a deeper dive into what constitutes a chargeable interest, see SDLTM00280.

Examples of How Section 75A Works

To illustrate how Section 75A operates, consider the following scenarios:

Example 1: Transaction with Reduced SDLT

Imagine V owns a piece of land valued at £200,000. V enters into a complicated arrangement where several transactions happen, leading to P acquiring a share of that land for £180,000 via multiple steps.

– If P had simply acquired the land in a direct transaction from V for £200,000, the SDLT would be calculated based on that full amount.
– However, because the scheme involves additional steps, the total SDLT payable on the actual series of transactions amounts to only £1,500 (assuming the rate applicable).
– Since this total is less than the SDLT from the straightforward transaction, Section 75A could apply.

Example 2: Not Meeting the Requirements

Now consider a scenario where V disposes of a chargeable interest to P, but there is no series of related transactions.

– In this case, V sells the property directly to P for £150,000.
– The SDLT owed for this direct transaction would be based on that amount.
– There are no other transactions to consider, therefore the conditions of Section 75A are not met, and it cannot be applied.

Important Considerations

When applying Section 75A, there are several important factors to keep in mind:

• Schemes Must Be Related: The transactions that contribute to the overall SDLT calculation must be linked in some way. A simple purchase will not qualify.
• Calculating SDLT: It’s essential to correctly compute the SDLT based on the value of interests in question, ensuring all relevant transactions are included in the calculation.
• Documentation: Keeping precise records of all transactions that contribute to the calculation of SDLT is necessary. This will help in determining whether Section 75A can be invoked.
• Consultation Recommended: Consider speaking to a tax professional or specialist if you might be dealing with complex transactions under Section 75A. They can provide tailored advice based on your specific situation.

Scenarios Where Section 75A Might Be Applied

There are various scenarios where Section 75A could be applicable. Some include:

– Group Transfers: If multiple properties are transferred within a corporate group at advantageous rates and include a series of closely related transactions, Section 75A may apply due to the overall reduced SDLT across the group.

– Joint Ventures: In cases where two or more parties are involved in a joint venture that includes the disposal and acquisition of chargeable interests, deciding to structure the deals in a way that influences the SDLT could lead to applying Section 75A.

– Complex Restructurings: If a property ownership structure is altered through a complex course of transactions, Section 75A can sometimes be beneficial to reduce the overall SDLT due.

Final Notes on Applying Section 75A

When involved in land transactions that may potentially fall under the scope of Section 75A, it’s paramount to:

– Thoroughly assess all transactions leading to the acquisition of a chargeable interest.
– Calculate total SDLT payable accurately to see if it falls below the notional amount of a straightforward transaction.
– Maintain clear documentation of each transaction involved in the scheme.

For more detailed information regarding guidelines and implications of Section 75A, refer to the official guidelines or consult a tax professional who is well-versed in SDLT matters.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09100 – Application and approach: Section 75A (1)

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