HMRC SDLT: Guidance on Incidental Transactions and Chargeable Consideration for Notional Land Transactions
Incidental Transactions and Chargeable Consideration
This section explains how incidental transactions are treated when calculating the chargeable consideration for notional land transactions between parties V and P. It clarifies when consideration for a transaction can be excluded and how to handle transactions that are not entirely incidental.
- Consideration for a transaction is excluded if the transaction is incidental to the transfer of the chargeable interest from V to P.
- Even if a transaction is incidental, it can still be part of a scheme transaction.
- If a transaction is not fully incidental, the consideration can be apportioned on a just and reasonable basis.
- The portion of consideration deemed incidental is ignored when calculating the chargeable consideration.
- This guidance was introduced on 15 January 2020.
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Read the original guidance here:
HMRC SDLT: Guidance on Incidental Transactions and Chargeable Consideration for Notional Land Transactions
Guidance on Incidental Transactions for Stamp Duty Land Tax
Introduction to Incidental Transactions
In the context of Stamp Duty Land Tax (SDLT), an incidental transaction refers to a deal or agreement linked to the main property transaction but not directly part of it. This is important when determining how much Stamp Duty you may need to pay.
Understanding Chargeable Consideration
– Chargeable consideration is essentially the amount upon which Stamp Duty is calculated when buying a property.
– When assessing this amount, certain transactions may be categorised as incidental.
What Are Incidental Transactions?
Incidental transactions are those that are related to the primary property deal but do not form a direct part of the main consideration.
Example:
If you purchase a house and as part of the deal you also pay for certain furniture, the furniture transaction may be considered incidental. The payment for the furniture could fall outside the chargeable consideration for Stamp Duty.
Exclusion of Consideration
Only the amount related to the incidental transaction is excluded from the total chargeable consideration. It’s important to understand that while the consideration of incidental transactions is ignored, the transaction itself can still have implications for the overall scheme.
When Is a Transaction Not Considered Incidental?
If a transaction has specific elements that tie it more closely to the main property transfer, it is not entirely incidental. In such cases, you would have to divide the consideration into two parts:
1. The portion that can be considered incidental.
2. The portion that directly contributes to the chargeable interest transfer.
Example:
Imagine you are buying a piece of land for £200,000. If you pay an additional £10,000 for a building on that land which is not the main element of the transaction but is associated with the purchase, you might argue that part of that payment is incidental. If you believe that £4,000 of this amount is strictly incidental, you would then only consider £196,000 (£200,000 – £4,000) for your chargeable consideration when calculating Stamp Duty.
Apportioning Consideration on a Just and Reasonable Basis
When differentiating between incidental and non-incidental transactions, you must apportion the total consideration fairly. This is called apportioning on a just and reasonable basis.
Key Principles for Apportioning:
– Identify the total amount paid for the complete transaction.
– Determine which part of that amount relates solely to the incidental transaction.
– Subtract the apportioned incidental amount from the total when calculating chargeable consideration.
Practical Applications
– Real Estate Purchases: If you are buying a property and also purchasing associated assets like fixtures or fittings, carefully consider how to classify each payment.
– Business Transactions: In commercial property deals, consider all components that may be part of the transaction, such as supplies or additional services involved in the transfer.
Factors to Consider When Classifying Incidental Transactions
To accurately determine if a transaction can be deemed incidental, consider the following factors:
– Nature of the Transaction: Does it relate directly to the main transaction, or is it more of a side deal?
– Value Contribution: How much does this transaction add to the overall deal?
– Intent of Parties Involved: What was the purpose behind including this transaction in the overall agreement?
Further Interpretation
It is essential to use caution when deciding if a transaction is incidental. It is advised to have clear records and justification for your assessment and to consult with a tax professional if you are uncertain.
Legislative Framework
The guidance around incidental transactions falls under Section 75B of the relevant legislation. This section helps clarify how to treat various considerations during property transactions.
Links for More Information
For further details on incidental transactions and their implications for Stamp Duty Land Tax, please refer to:
SDLTM09240 – Incidental transactions: Section 75B
Important Reminders
– Always keep thorough records of all transactions related to a property deal.
– Be clear about how you make any apportionments; this can help avoid misunderstandings with HMRC.
Conclusion
Understanding incidental transactions is crucial for accurate tax calculations and compliance with Stamp Duty regulations. Always ensure to review your transactions closely to determine what should be included in the chargeable consideration.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Guidance on Incidental Transactions and Chargeable Consideration for Notional Land Transactions
