HMRC SDLT: SDLTM09170 – Scheme Transactions: Section 75A (1)(b)

Principles and Concepts of Section 75A (1)(b)

This section of the HMRC internal manual provides guidance on Scheme Transactions under Section 75A (1)(b). It outlines the principles and concepts involved in the application of this section, focusing on tax implications and compliance requirements.

• Explains the scope of Scheme Transactions.
• Details the criteria for transactions falling under Section 75A (1)(b).
• Discusses the tax liabilities associated with these transactions.
• Provides examples to illustrate key concepts.
• Offers guidance on compliance and reporting obligations.

Understanding Scheme Transactions under Section 75A(1)(b)

Introduction to Section 75A

When examining how Section 75A applies to transactions, it’s essential to look at specific conditions. One important element is found in Section 75A(1)(b). This section deals with several transactions that are involved when a person (referred to as ‘V’) disposes of a chargeable interest and another individual (referred to as ‘P’) acquires that interest or one that comes from it.

These transactions are known as “scheme transactions.”

What Are Scheme Transactions?

A scheme transaction is any transaction that is part of the process where P acquires V’s chargeable interest, or one derived from it. Essentially, any transaction associated with both the disposal of the chargeable interest by V and the acquisition by P qualifies as a scheme transaction under Section 75A.

Key Principles to Consider

When applying Section 75A, remember the following points:

– Totality of Transactions: It’s essential to consider the entire context of V’s disposal and P’s acquisition. This means looking at all the scheme transactions together, as they help establish who V and P are and how the associated money or consideration for the notional land transaction is calculated.

– Subsequent Transactions: Even if a transaction occurs after P acquires the chargeable interest, it can still be regarded as a scheme transaction under Section 75A(2)(b). For specific transactions that fall into this category, you can refer to SDLTM09180.

– No Need for Tax Avoidance Motives: For a transaction to qualify as a scheme transaction, it does not have to have the aim of avoiding tax. Additionally, the transactions do not need to be interconnected or part of a larger structure specifically designed to evade tax. It is also crucial to understand that even when the reduction in Stamp Duty Land Tax (SDLT) is unintentional, Section 75A can still apply.

Examples of Scheme Transactions

Consider a scenario where V sells a property to P. If there are multiple legal transfers or agreements related to this transaction, such as settling debts or including other assets in the sale, all of these could be classified as scheme transactions. Thus, even if V and P conduct several separate actions leading to this sale, they can still be grouped together under Section 75A.

– Example 1: Sale with Additional Agreements
V sells a building to P. Alongside the sale, they also agree on a leaseback arrangement for part of the property. Both the sale and leaseback are scheme transactions because they are connected to the acquisition of the property.

– Example 2: Series of Transactions
V disposes of a chargeable interest in a commercial property to P. After this, P might engage in additional agreements like securing a loan tied to the property or selling part of the property to a third party. Although these follow-up transactions occur after the main acquisition, they are still considered scheme transactions because they relate closely to V’s original disposal and P’s acquisition.

Definition of Chargeable Interest

A chargeable interest generally pertains to ownership in a piece of land or property, which can attract SDLT when it is disposed of. Whether P is acquiring the chargeable interest directly or gaining control through a derived interest, these cases still fall under the definition when assessing scheme transactions.

What Happens When Land Transactions Are Involved?

When dealing with scheme transactions that are classified as land transactions, specific rules apply. Under Section 75A(4), any scheme transaction that constitutes a land transaction may be disregarded. Instead, this will be replaced by a notional land transaction.

Understanding Notional Land Transactions

A notional land transaction serves as a conceptual substitute when numerous related transactions are involved in land dealings. In this case, the notional land transaction would represent the acquisition of V’s chargeable interest by P, effectively simplifying the SDLT calculation while ensuring compliance with the relevant law.

– Example of Notional Land Transaction
If P acquires V’s chargeable interest and there are additional transactions taking place that also involve the same interest, rather than taxing each individually, HMRC would consider them as arising from one notional transaction. This ensures that the tax applies consistently and fairly across connected transfers.

Additional Considerations for Scheme Transactions

Here are some further considerations regarding scheme transactions that can affect SDLT calculations:

– Independent Transactions May Qualify: Even if a scheme transaction is standalone and not dependent on others, it can still be applicable under Section 75A. Thus, these transactions are not necessitated to form part of a broader tax avoidance scheme.

– Impact on SDLT Calculations: Scheme transactions can significantly influence how SDLT is calculated. When identifying the appropriate SDLT rate or amount, all qualifying transactions must be factored into the assessment.

– Documentation is Key: It is essential for V and P to keep clear records of all relevant transactions. This documentation can be vital for accurately assessing tax liability under SDLT and for providing clarity in the event of an HMRC inquiry.

– Review of Prior Case Law: The case of Project Blue Ltd v HMRC is often referenced to determine how broadly scheme transactions are understood within legal contexts. The decisive judgement in this case leans towards a broad interpretation, emphasizing the interconnectedness of transactions in these scenarios.

Challenges and Considerations

Lastly, individuals must be aware of the challenges that may arise with scheme transactions:

– Complexity in Calculation: Given the potential number of transactions involved, working out the total consideration can be complex and may require professional advice.

– Risk of Misinterpretation: Misunderstanding what constitutes a scheme transaction can lead to incorrect tax filings, which may trigger penalties or additional tax assessments from HMRC.

– Potential for Legal Advice: Due to the intricacies included in applying Section 75A, legal advice may often be necessary. Tax professionals can help navigate through the specifics of what qualifies as a scheme transaction and ensure proper compliance with SDLT regulations.

Understanding Section 75A(1)(b) and its application to scheme transactions is essential for anyone involved in property dealings and acquisitions. By grasping these principles, parties can better prepare for tax obligations and avoid unintended consequences. Each transaction must be looked at critically to ensure all are accounted correctly within the SDLT framework.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09170 – Scheme Transactions: Section 75A (1)(b)

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