HMRC SDLT: SDLTM09330 – Just and reasonable apportionment: Section 75C (5)

Just and Reasonable Apportionment: Section 75C (5)

This section of the HMRC internal manual discusses the principles and concepts of just and reasonable apportionment under Section 75C (5). It provides guidance on how to fairly allocate costs or values in specific tax scenarios.

• Explains the legal framework for apportionment.
• Details criteria for determining fairness and reasonableness.
• Offers examples to illustrate application in practice.
• Guides on compliance with HMRC standards.

Guidance on Just and Reasonable Apportionment for Stamp Duty Land Tax

This guidance explains how to fairly divide the consideration when calculating Stamp Duty Land Tax (SDLT) for a transaction that involves different types of property interests. It focuses on the principle of just and reasonable apportionment as outlined in Section 75C (5) of the SDLT legislation.

What is Chargeable Consideration?

Chargeable consideration is the total value exchanged in a property transaction which, in most cases, determines the amount of SDLT payable. It can include:

• Money paid for the property
• Other valuables or property interests

Understanding Just and Reasonable Apportionment

When a transaction involves both a chargeable interest and other types of interests, it may be necessary to split the total consideration into parts. This is where the concept of just and reasonable apportionment comes in.

Just and reasonable apportionment means making a fair division of the consideration considering how much of it relates to each interest involved in the transaction. This ensures that SDLT is calculated based on only the chargeable interest acquired by the purchaser (P).

Example of Just and Reasonable Apportionment

Let’s say that in a property transaction, Vendor (V) sells a piece of land (which qualifies as chargeable interest) for £300,000 to Purchaser (P). However, as part of the deal, the vendor also includes an additional building (which may not be chargeable) valued at £50,000. In this case, the total consideration is £350,000.

Here’s how you would apply just and reasonable apportionment:

• The chargeable interest: £300,000
• The non-chargeable interest (building): £50,000
• Total consideration: £350,000

To apply the just and reasonable apportionment, you focus only on the chargeable interest. Hence, the SDLT would be calculated solely on the £300,000, ignoring the £50,000 related to the non-chargeable interest.

Importance of Fairness in Apportionment

The aim of just and reasonable apportionment is to ensure fairness. It is crucial that the correct amount of chargeable consideration is determined, as this directly affects how much SDLT is paid.

It is advisable for both the vendor and purchaser to agree on how the total consideration is split before finalising the transaction. This can help avoid disagreements or disputes later on.

Legal Framework for Apportionment

The legal basis for just and reasonable apportionment is found in Section 75C (5) of the relevant legislation. It guides how parties should approach the valuation of property interests in mixed transactions.

What to Consider When Apportioning

When performing an apportionment, consider the following:

• The market value of each interest involved
• Any previous transactions involving similar properties or interests
• How the interests are interrelated in terms of what was agreed in the sale

Using Professional Advice

For complicated transactions or when in doubt, it is wise to seek professional advice. Valuers and tax advisors can provide guidance on how to fairly determine the apportionment based on market conditions and legislation.

They can also assist in preparing the necessary documentation to support your apportionment, should HMRC require additional information or clarification.

Documentation and Record-Keeping

It is important to keep accurate records of all transactions and how you arrived at your apportionment decision. This includes:

• Contracts or agreements made
• Valuations conducted
• Communications between the vendor and purchaser

These documents can prove helpful if HMRC requests further details during their review process or if there are questions about the calculation of SDLT.

Common Mistakes in Apportionment

When dealing with just and reasonable apportionment, some common mistakes to avoid include:

• Focusing solely on the highest value asset and ignoring others
• Neglecting to consider market values for all interests
• Failing to document the basis for the apportionment made

Rectifying these errors can be time-consuming and may lead to penalties if SDLT is incorrectly calculated.

Conclusion

Understanding and applying just and reasonable apportionment is essential for correctly calculating the SDLT on property transactions involving various interests. Awareness of how to fairly divide consideration helps ensure compliance with tax obligations and reduces the risk of issues during the transaction process.

For more detailed insights, you can refer to the specific HMRC guidance by visiting SDLTM09330 – Just and reasonable apportionment: Section 75C (5).

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09330 – Just and reasonable apportionment: Section 75C (5)

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