Stamp Duty Land Tax (SDLT): Higher Rate Charges for Non-Natural Persons

Introduction

Stamp Duty Land Tax (SDLT) is a tax that applies when you buy property or land in the UK. Certain conditions and rates are particularly relevant for certain buyers, especially non-natural persons, such as companies and partnerships, when they acquire residential properties. This can lead to a higher rate of SDLT.

When is SDLT Chargeable?

The higher rate of SDLT applies to non-natural persons acquiring interests in residential property. The key points to consider are:

– Non-Natural Persons: This term refers to entities like companies, partnerships, and other organisations that are not individual people.

– Higher Rate Threshold: Non-natural persons are subject to a higher SDLT charge on residential property transactions.

Transactions Affected by the Higher Rate

The higher rate applies when:

– Non-natural persons acquire residential properties.
– The purchase is one of multiple properties, or if the transaction involves multiple interests in the same property.

Understanding ‘Higher Threshold Interest’

A ‘higher threshold interest’ includes property interests that exceed a certain value, specifically when multiple properties are involved. Here are the basics:

– If the combined value of residential properties purchased exceeds £500,000, the higher SDLT rate may apply.

– This applies regardless of the individual purchase price of each property involved if together they exceed this amount.

Definition of a Dwelling

For SDLT purposes, a ‘dwelling’ is any property that provides living accommodation. This includes:

– Houses, flats, and bungalows.
– Properties that have the potential for residential use.

What is a Property ‘Suitable for Use as a Dwelling’?

A property is considered suitable for use as a dwelling if it can provide living space without significant adaptation. For example:

– A typical house or flat meets this requirement.
– Properties that require extensive conversion or renovation may not qualify until the work is completed.

What is Not Considered a Dwelling?

Not every property qualifies as a dwelling. Some examples include:

– Commercial buildings, like offices and shops.
– Land without any structures that allow for residential living.
– Vehicles or structures not meant for long-term living, such as caravans or mobile homes—unless they are permanently situated.

Interests in Higher Threshold Properties with Other Chargeable Interests

If a non-natural person acquires multiple interests in properties, specific rules apply:

– SDLT will apply if the transactions add up to the higher threshold. This means more properties can lead to a higher SDLT charge even if one does not reach the threshold on its own.

Transactions with More Than One Interest in the Same Dwelling

If a transaction involves more than one interest in a single dwelling, the following applies:

– SDLT calculations may consider the combined interests together.
– This rule helps in understanding how to classify amounts.

Return Obligations

Whenever a non-natural person buys a residential property, they must:

– Complete an SDLT return.
– Pay any tax owed within the specified deadline, typically 14 days from completion of the purchase.

Exclusions from the Higher Rate Charge

Certain transactions can be excluded from the higher SDLT rate. These include:

– Purchases by qualifying property rental businesses.
– Certain properties used for business activities as listed below.

Property Rental Businesses

If a non-natural person is involved in a property rental business, they may not be subject to the higher rate if the properties meet specific criteria:

– The properties should primarily be rented out as part of a qualifying business.
– The nature of the rental business is essential in determining the SDLT rate.

Use as Business Premises for Qualifying Property Rental Businesses

For properties used as business premises, the higher rate may not apply if:

– The property is primarily used for business, and the rent is offered in a standard rental agreement.

Acquisitions for Resale in Property Development

If a non-natural person acquires property for resale as part of a property development trade, they may qualify for an exemption from the higher rate if:

– The acquisition is part of a qualifying exchange.
– The resale is planned as part of the business normal.

Acquisition for Resale as Part of a Property Trading Business

When acquiring property intended for resale:

– The transaction might be exempt from higher rates if it’s part of a business dealing in property.

Occupation by Non-Qualifying Individuals

In some cases, even if property acquired by non-natural persons is occupied by individuals who do not meet certain criteria, the higher rate may still apply based on the structure and purpose of the organisation.

Meaning of Non-Qualifying Individual

A non-qualifying individual refers to those who do not meet specific conditions set forth under SDLT rules, and this classification can affect SDLT rates.

Exceptions to the Connected Persons Rule

The connected persons rule defines how relationships can affect property transactions and SDLT rates.

– Certain exceptions may exempt non-natural persons from the higher rates if connections are proven irrelevant.

Issues with Withdrawal of Relief

Withdrawal of relief could happen if:

– The property no longer qualifies under a specified criterion.
– Changes in occupancy are made that differ from initial conditions.

There are various instances where relief can be withdrawn including:

– Properties for businesses trading in property development.
– Changes regarding employees and partners occupying the properties.

Alternative Finance Arrangements

Alternative finance methods might apply to SDLT, and their treatment can differ based on how they fit into established guidelines.

– The concept aims to ensure that financing structure does not unfairly attract higher tax rates.

Partnership Transactions

Partnerships purchasing property must also submit SDLT returns and pay the relevant SDLT.

– The structure and operations of the partnership can affect how rates apply.

Multiple Dwellings Relief

There is a relief available for multiple dwellings acquired at the same time, which helps reduce the overall SDLT liability.

– The relief is intended to encourage the acquisition of more than one dwelling at once.

Transitional Provisions for Higher Rate Charge

Changes in SDLT regulations may introduce transitional provisions when a higher rate charge is applied, or the threshold is altered.

– This includes rules that determine how new rates apply to existing agreements.

Overall, understanding these concepts and provisions is essential for non-natural persons involved in property transactions. This guidance outlines the key tax implications and helps ensure compliance with SDLT regulations. For inquiries related to SDLT details, further resources are available, including specific guidance under the various clauses of the Finance Act, which govern these transactions. For more details, check [SDLTM0000](https://stampdutyadvicebureau.co.uk/hmrc/SDLTM0000).

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09500 – Scope: when is Stamp Duty Land Tax (SDLT) chargeable: higher rate charge for acquisitions of residential property by certain non-natural persons FA03/S55/SCH4A: contents

View all HMRC SDLT Guidance Pages Here