HMRC SDLT: SDLTM09535 – 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: purchases of higher threshold interests with other chargeable interests FA03/SCH4A/PARA2

Principles and Concepts of SDLT Higher Rate Charge

This section of the HMRC internal manual explains the higher rate charge for Stamp Duty Land Tax (SDLT) applicable to acquisitions of residential property by certain non-natural persons. It covers the following key points:

• Definition of non-natural persons and their relevance to SDLT.
• Criteria for higher rate SDLT charges under FA03/S55/SCH4A.
• Explanation of higher threshold interests and other chargeable interests.
• Specific provisions under FA03/SCH4A/PARA2.

Understanding Stamp Duty Land Tax (SDLT) Charges

Introduction to SDLT Rates

When you acquire property in the UK, you may be required to pay Stamp Duty Land Tax (SDLT). The rates depend on various factors, including the type and value of the property. One of the key considerations is whether your purchase falls into the category of higher threshold interests, which comes with a higher rate of 15%. Understanding how to apply these rates can help you in managing your SDLT obligations.

Chargeable Interests

A chargeable interest refers to any interest in property that attracts SDLT. Here are the types of chargeable interests:

– Residential Property: This includes houses, flats, and any land associated with them.
– Non-Residential Property: This covers commercial buildings such as offices, shops, and factories.
– Mixed-Use Property: This involves properties that combine both residential and non-residential elements, like a shop with a flat above it.

Higher Rate Charge for Certain Non-Natural Persons

If a transaction involves acquiring multiple chargeable interests, you must determine if any of these interests exceed the higher rate threshold. According to the law (FA03/S55/SCH4A), you need to divide the total consideration fairly among the chargeable interests.

### Key Points:
– The higher rate (15%) applies only to interests that exceed the specified threshold.
– Normal SDLT rules apply to the remaining chargeable interests that fall below the threshold.

Examples of When the Higher Rate Applies

1. Combining Dwellings:
– Imagine a company buys two properties: a large house worth £800,000 and a smaller one priced at £300,000. In this case, the £800,000 house is subject to the 15% higher rate, while the £300,000 house will be taxed at the normal residential rates. The company must report these acquisitions separately.

2. Mixed-Use Properties:
– Consider a company purchasing a property that is a café on the ground floor and a flat above. If the café’s value is £2 million and the flat worth £600,000, the higher rate applies to the flat because it exceeds the threshold, while the café would be taxed at non-residential rates.

3. Larger Portfolios:
– If a company acquires six residential dwellings for £1 million each in a single transaction, the first dwelling exceeding the higher rate threshold will incur the 15% charge. The other five dwellings will be treated differently because they fall under additional dwelling rules.

Multiple Dwellings Relief (MDR)

Before 1 June 2024, there was an option to claim Multiple Dwellings Relief for certain transactions. Here’s how it worked:

– For dwellings that did not meet the higher rate charge, buyers had two choices:
1. Pay the non-residential rates: This choice involved calculating the total amount associated with the properties without the additional higher rate.
2. Claim Multiple Dwellings Relief: This allowed buyers to apply a lower rate based on the accumulated costs across multiple properties.

### Changes after 1 June 2024
After this date, the option to claim MDR is no longer available. All properties purchased will be subject to the applicable SDLT based on the new rules.

Reporting Requirements

When you acquire both higher threshold interests and other properties, it is essential to report these acquisitions separately:

– Two Returns Requirement:
– You must create two SDLT returns. One return should cover the acquisition of any interests that exceed the higher threshold. The second return covers the acquisitions that are below the threshold.

– No Linked Transactions:
– These acquisitions are not treated as linked, meaning the SDLT owed will be based solely on the appropriate amounts attributed to each interest, rather than the entire combined value.

Understanding Non-Residential Rates

For properties that do not fall under the higher rate but are still considered residential, these will be taxed at non-residential rates depending on their calculated value.

1. Step-by-Step Process:
– If the higher rate does not apply, determine the non-residential rate applicable to the transaction and pay the SDLT on that basis for the lower-value interests.

2. Important Note:
– The changes effective from June 2024 affect how these calculations are approached. Businesses should consult current regulations to ensure compliance.

Examples Illustrating SDLT Charge Application

– Example 1:
– A company acquires two residential properties on 1 January 2015. One costs £600,000 and the other £400,000. The £600,000 property incurs the 15% charge due to exceeding the threshold, while the £400,000 costs will be taxed at the higher rates for additional dwellings.

– Example 2:
– A company buys a property for £5 million, comprising a £2.5 million house and a significant area of moorland. The £2.5 million property incurs the higher SDLT charge, while the remaining land is subject to normal non-residential rates.

– Example 3:
– On 1 June 2014, a company purchases a single dwelling for £1 million and five additional properties, each costing under £500,000. The main dwelling is subject to the 15% charge, while the five others will be charged at the non-residential rate, as they constitute more than six dwellings.

– Example 4:
– In a mixed-use purchase, suppose the apportioned price for a dwelling exceeds £500,000. If the higher rate of 15% applies, that dwelling incurs the higher rate charge, and the remaining amount is charged at non-residential rates. If this charge doesn’t apply, standard mixed-use rules come into effect, applying non-residential rates to the whole transaction.

Final Thoughts on SDLT Charges

Understanding the particulars of Stamp Duty Land Tax, especially regarding higher threshold interests, helps ensure compliance and accurate tax calculations. Buyers should stay vigilant about the laws and be prepared to report correctly based on property types and their associated costs.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09535 – 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: purchases of higher threshold interests with other chargeable interests FA03/SCH4A/PARA2

View all HMRC SDLT Guidance Pages Here