HMRC SDLT: SDLTM09605 – 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 ‘carried on a commercial basis with a view to the realisation of profits’

Principles and Concepts of SDLT Higher Rate Charge

This section of the HMRC internal manual outlines when Stamp Duty Land Tax (SDLT) is chargeable at a higher rate for acquisitions of residential property by certain non-natural persons. It focuses on the criteria of being ‘carried on a commercial basis with a view to the realisation of profits’. Key principles include:

• Definition of non-natural persons subject to higher SDLT rates.
• Criteria for commercial basis operations.
• Focus on profit realisation intentions.
• Relevant legislative references: FA03/S55/SCH4A.

Understanding Stamp Duty Land Tax (SDLT) and Its Higher Rate for Non-Natural Persons

What is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax (SDLT) is a tax that must be paid when someone buys a property or land in England and Northern Ireland. The amount of tax depends on the price of the property.

When properties are bought by specific types of buyers, particularly non-natural persons like companies, a higher rate of SDLT may apply. This guidance focuses on these higher rates and outlines the concept of ‘carried on a commercial basis.’

Who Pays Higher Rates of SDLT?

Higher rates of SDLT apply to buyers who are classified as non-natural persons. This includes:

– Companies
– Partnerships where at least one of the partners is a corporate body
– Collective investment schemes

If these entities purchase residential properties, they will likely face higher SDLT rates than individual buyers.

When is SDLT Charged at the Higher Rate?

The higher rate of SDLT is chargeable when a non-natural person acquires residential property. However, there are exceptions to this rule, particularly related to the nature of the trade the non-natural person is engaged in.

What Does ‘Carried on a Commercial Basis’ Mean?

A trade is considered to be ‘carried on a commercial basis’ when it aims to generate profit. To qualify for the lower SDLT rate, the activity conducted by the non-natural person must meet specific commercial criteria.

Here are some key points that clarify this concept:

– The property must be actively involved in a business for the trade to be considered commercial.
– The aim should be to make a profit rather than just to subsidise costs or discourage use.

Examples of Commercial Trade

Let’s look at a couple of examples that illustrate when a trade can be considered commercial:

1. Historic House as a Venue:
If a historic house is open to the public and operates as a wedding venue aiming to make a profit, that activity is being carried on a commercial basis. The profits earned can help cover running costs, and this qualifies as commercial activity.

2. Limited Accessibility:
If a property is made available only on limited days or at specific times that are not likely to attract users, it may fall short of being carried on a commercial basis. For instance, a holiday home rented out sporadically and purposely restricted to discourage bookings may not qualify for the commercial basis needed for relief.

How Does the Trade Affect SDLT Charges?

The way a trade operates directly impacts whether it qualifies for SDLT relief. Here’s how this works:

– If the trade is structured to profit from its commercial activities, then buyers (like companies) can apply for relief from higher SDLT rates.
– Conversely, if the trade’s structure makes it difficult for customers to use the rental property, it does not demonstrate profit-seeking behaviour and may be subject to the higher rates.

The Importance of Intent in Business Operations

The key aspect is the intent behind carrying out the trade. Here are some important considerations:

– Profit-Driven Goals: The business must aim to earn an income. For example, a property let out for holidays should attract customers throughout the year, showing commercial viability.
– Business Accessibility: To qualify as a commercial operation, the property should be readily accessible to prospective clients, avoiding operations that would make it less popular or less usable.

Documentation and Evidence

Entities claiming eligibility for lower SDLT rates may need to provide evidence that their trade is indeed commercial. This could include:

– Financial records showing profits from the trade.
– Business plans that detail how the operations are intended to earn profits.
– Any marketing materials that indicate efforts to attract customers.

If HMRC investigates, adequate supporting documentation would prove vital in demonstrating that the activities were genuinely commercial.

Legislative Framework Behind SDLT

The SDLT rules are outlined in various legislative documents. In particular:

– FA03/S55/SCH4A details the provisions concerning the higher rates for non-natural persons.
– These guidelines specify that the commercial nature of residential property transactions involving non-natural persons needs close scrutiny.

For more details, you can refer to the official guidelines regarding the SDLTM0000 section.

General Exceptions to Higher Rates

Some exceptions to the higher SDLT rates exist. These might include:

– Acquisitions that fall under specific exemptions set out in the law.
– Cases where the non-natural person is part of a housing scheme benefiting from government support.

Understanding these exceptions is crucial for accurately assessing SDLT liabilities.

Conclusion of Key Principles

The principles guiding the application of SDLT, particularly for non-natural persons, are predominantly focused on the nature of their business activities. The distinction between profit-generating ventures and those that merely exist can determine the SDLT rate applied to property transactions.

By understanding these rules and examples, buyers can better navigate the complexities of SDLT and ensure compliance with the regulations.

Remember, when in doubt, consulting a professional tax advisor can provide clarity tailored to your unique circumstances.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09605 – 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 ‘carried on a commercial basis with a view to the realisation of profits’

View all HMRC SDLT Guidance Pages Here