HMRC SDLT: SDLTM09580 – 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: meaning of non-qualifying individual FA03/SCH4A/PARA5A
Principles of SDLT Higher Rate Charge
This section of the HMRC internal manual explains the higher rate charge of Stamp Duty Land Tax (SDLT) applicable to acquisitions of residential property by certain non-natural persons. It focuses on the meaning of a non-qualifying individual under the Finance Act 2003.
- Defines non-natural persons subject to higher SDLT rates.
- Clarifies the criteria for non-qualifying individuals.
- Explains relevant sections of the Finance Act 2003.
- Provides guidance for HMRC staff on SDLT application.
Understanding When Stamp Duty Land Tax (SDLT) Applies
Stamp Duty Land Tax (SDLT) is a tax that may be charged when you purchase a property, specifically residential property. There can be higher rates of SDLT that apply to certain buyers, particularly those who do not qualify as individuals under specific conditions. Here, we clarify the circumstances that classify a buyer as a non-qualifying individual regarding SDLT.
What is a Non-Qualifying Individual?
A non-qualifying individual is someone who, in relation to a property transaction, falls into one of the following categories:
- Joint Ownership with Higher Rate Charge: If a person buys a property jointly with another person who is liable for the higher rate of SDLT, then the first purchaser is considered a non-qualifying individual. Joint ownership includes any linked transactions involving the same seller and buyer or their connected persons.
- Partnership Membership: If an individual is part of a partnership that falls under the higher SDLT rate—specifically when a company is a member—and they hold a significant share (50% or more) in that partnership, they are viewed as a non-qualifying individual.
- Connected Individuals: An individual who is connected to someone who owns the property interest is considered non-qualifying. ‘Connection’ is defined broadly, according to section 1122 of the CTA 2010. This usually applies when the property is owned by a company, and those in control of that company are viewed as connected to the individual.
- Relevant Settlor of a Trust: An individual who has created a trust, where the trustee has any connection to the buyer of the property, counts as a non-qualifying individual. This applies when a trustee has control over a company that buys the property, linking them to the purchaser.
- Spouses and Civil Partners: The spouse or civil partner of anyone connected to a property owner or relevant settlor qualifies as a non-qualifying individual.
- Relatives of Connected Persons: Relatives of connected persons (defined in section 1123 CTA 2010) and their spouses or civil partners also count. This includes siblings, ancestors, and descendants.
- Further Relatives: Additionally, relatives of the spouse or civil partner of a connected individual or relevant settlor are considered non-qualifying individuals.
- Major Participants in Investment Schemes: If an individual is a major participant in a collective investment scheme that acquires a property interest, or is connected to a major participant in such a scheme, they also qualify as a non-qualifying individual. A major participant is typically someone who holds at least 50% of the profits or assets from the scheme.
Examples of Non-Qualifying Individual Scenarios
To illustrate these points better, consider the following examples:
- Example of Joint Ownership: A man purchases a home with his sister, who already owns a property that incurs the higher SDLT rate. Since they co-own the property, the man is viewed as a non-qualifying individual.
- Example Involving a Partnership: A woman is a partner in a firm that has a corporate member. If she owns 60% of the partnership, her share makes her a non-qualifying individual when they acquire property via the firm.
- Example of Connection: If a company owns the property, and someone has control over that company, any individual connected to that person (like a family member) is seen as a non-qualifying individual.
- Example of a Trust: If someone establishes a trust and the trustee is associated with a property buyer, the person who set up the trust (the settlor) is classified as a non-qualifying individual.
- Example of Relatives: If a property owner has a spouse who is a brother of another property owner, both parties would be considered connected individuals, resulting in the spouse being classified as a non-qualifying individual.
- Example of Major Investment Scheme Participation: An individual owning 50% of a collective investment scheme that buys a residential property is labelled a non-qualifying individual under SDLT rules.
Key Points Regarding Higher Rates of SDLT
The higher rate of SDLT affects individuals or partnerships purchasing additional residential properties or those involving certain entities. Here are essential aspects to consider:
- Additional Properties: If you already own one or more properties and are buying another, the higher SDLT rates are more likely to apply.
- Who is Meddling with Transactions: Entities like companies or partnerships can increase SDLT liabilities if linked to the buyer. The connections between buyers can create non-qualifying individuals within these transactions.
- Key Identifiers for Higher Rate SDLT: The established connections and the nature of ownership typically indicate whether a property transaction falls under the higher SDLT rate.
- Punitive Rate Application: The penalties that could arise from being classified as a non-qualifying individual are significant and must be taken into account during property transactions.
Identifying Connections Based on CTA 2010
The concept of connection is central to determining non-qualifying individuals for SDLT. According to section 1122 of the CTA 2010:
- Control Definitions: A person is considered to control a company if they hold the majority voting rights or can effectively exert influence over the company’s operations.
- Family Links: Relationships defined as connection can include immediate family members, such as spouses, civil partners, and even extended family connections through descent.
Concluding Thoughts on Managing SDLT Responsibilities
It’s crucial to be aware of these classifications when involved in any property transactions that may result in SDLT charges. Engaging with property lawyers or SDLT specialists can offer clarity on these classifications and help manage potential liabilities. Understanding the implications of being a non-qualifying individual and the connections that lead to that classification can save you from unexpected financial burdens in the future. Familiarity with documentations and maintaining accurate records of ownership and financial interests also plays a vital role in compliance with SDLT regulations.