HMRC SDLT: SDLTM09595 – 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 ‘qualifying trade’

Principles of SDLT Higher Rate Charge

This section of the HMRC internal manual explains the conditions under which Stamp Duty Land Tax (SDLT) is chargeable at a higher rate for residential property acquisitions by certain non-natural persons. It specifically addresses the meaning of a ‘qualifying trade’ under FA03/S55/SCH4A.

  • SDLT is a tax on property transactions in the UK.
  • Higher rates apply to purchases by non-natural persons.
  • ‘Qualifying trade’ determines eligibility for tax relief.
  • Guidance is provided for HMRC staff.

Understanding Stamp Duty Land Tax (SDLT) and Higher Rates for Certain Non-Natural Persons

Introduction to Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax (SDLT) is a tax you may need to pay when you buy a property or land in England and Northern Ireland. The amount you owe depends on the property’s price and whether you are a first-time buyer or making a buy-to-let purchase.

Certain categories of buyers, especially non-natural persons, may face a higher rate of SDLT when acquiring residential properties. This section explains what qualifies as a trade and how it is assessed for SDLT purposes.

What is a Non-Natural Person?

A non-natural person typically refers to a company, partnership, or body corporate, as opposed to an individual. When these entities buy residential property, they may be subject to different SDLT rules compared to individuals.

For certain non-natural persons, a higher rate of SDLT may apply, making it essential to understand the qualifying criteria for relief.

When is SDLT Chargeable?

SDLT is chargeable when you buy land or property. For individuals or businesses, various factors affect the SDLT amount, but the following are critical to understanding the higher rate criteria for non-natural persons.

### Higher Rate for Non-Natural Persons

1. Definition of Higher Rate: The higher rate of SDLT applies to properties bought by certain non-natural persons in specific circumstances.
2. Considerations: It is important to ensure that any claim for relief follows the defined legal guidelines, and the activities related to the property must be outlined.

Qualifying for Relief: Understanding ‘Qualifying Trade’

Under the SDLT rules, certain trades carried on by non-natural persons can qualify for relief from the higher SDLT rate. For a trade to qualify, it must meet two specific criteria:

1. Public Usage:
– The trade must involve providing the public with a chance to stay in or enjoy a significant part of the dwelling.
– This must occur for at least 28 days in each calendar year. For example, if a company operates a bed and breakfast that allows guests to book rooms, it qualifies as offering a public opportunity for usage.

2. Commercial Basis:
– The trade must be run on a commercial basis, meaning it is operated with the intent of making profits.
– This involves conducting business activities that generate income.

It is important to assess both criteria thoroughly, as the assessment will focus on the actual commercial activities conducted.

Generating Income from Property

For the tax to be relieved, the income generated must be closely tied to the dwelling itself and not be merely incidental. This means:

Direct Income: Income earned should stem from the activities associated with the property. For instance, operating a holiday rental that earns revenue directly from guests staying in the property qualifies.
Not Incidental Income: If the income generated is from activities that are only loosely related to the property, it will not qualify for relief. For example, if a guest uses a holiday home merely for a short duration without any other service being offered, this income may be considered incidental.

Assessing the Commercial Activity

To determine whether a trade qualifies under SDLT, a close look at the specific activities carried out is essential. The activities must show a clear intention to generate income and run a business. Key aspects to consider include:

1. Length of Time: The property must be available for use and enjoyment by the public for a minimum of 28 days each year.
2. Income Generation Activities: The nature of the business activities, such as rent collected from guests or fees from services like meal provisions or guided tours, should be transparent and documented.

Examples of Qualifying Activities

Here are a couple of examples of activities that meet the criteria for SDLT relief:

– Bed and Breakfast Operation: A company that runs a bed and breakfast opens its doors to guests year-round and allows rooms to be booked for a minimum of 28 days. The income earned from guests staying in the property represents a qualifying trade.

– Holiday Letting: A limited company that offers holiday lets where people can rent the entire house for more than 28 days could qualify for SDLT relief, assuming the business is operated for profit.

Detailed Assessment of the Trade

– When assessing a trade, look beyond merely the number of guests or the amount of profit. Focus on how the business is structured and its intent.
– The trade must align with standard commercial practices, demonstrating a consistent effort to market and use the property as a source of income.

Documentation and Record-keeping

It’s essential for non-natural persons to maintain clear records of their business activities. The documentation should include:

– Booking Records: Keep proof of each booking, including duration and fees charged.
– Financial Records: Detailed accounts of income and expenses to illustrate the commercial basis of the operations.

Such records will support claims for relief under the SDLT regulations.

Conclusion

Understanding the responsibilities and obligations related to SDLT is vital for non-natural persons when acquiring residential property. By confirming that trades qualify for relief and adhering to the stipulated guidelines, you can help ensure proper compliance and potentially reduce your SDLT liability.

For more detailed information, consider referring to the official guidance page on SDLT and qualifying trades.

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Written by Land Tax Expert Nick Garner.
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