HMRC SDLT: SDLTM09635 – 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: 10 per cent or greater share of a company
Principles and Concepts of SDLT Higher Rate Charge
This section of the HMRC internal manual explains the conditions under which the higher rate of Stamp Duty Land Tax (SDLT) is applicable for acquisitions of residential property by certain non-natural persons. It focuses on the criteria outlined in FA03/S55/SCH4A, particularly when a 10 per cent or greater share of a company is involved.
- SDLT higher rate applies to non-natural persons acquiring residential property.
- Relevant legislation: FA03/S55/SCH4A.
- Criteria include holding a 10% or greater company share.
- Guidance is part of HMRC’s internal manual.
Understanding Stamp Duty Land Tax (SDLT) Charges for Non-Natural Persons
This article explains when Stamp Duty Land Tax (SDLT) applies, particularly focusing on situations involving non-natural persons, such as companies. It highlights the criteria that determine when SDLT is charged at a higher rate, specifically concerning the ownership of residential property and the share ownership of companies.
What is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax (SDLT) is a tax you need to pay when you buy a property or land in England and Northern Ireland. The amount you pay depends on the property price and whether you’re a first-time buyer. Non-natural persons, such as companies, may be subject to different rates and rules.
When SDLT Applies to Non-Natural Persons
Higher rates of SDLT apply when a non-natural person acquires residential property. This means that companies and similar entities will pay more SDLT than individuals under certain circumstances.
Key Concepts and Criteria
The determination of whether SDLT applies at a higher rate hinges on the understanding of what it means to hold a 10 per cent or more share in a company. This is defined in Section 147 of the Finance Act 2013.
Defining a 10 Per Cent or Greater Share
A non-natural person, such as a company, is considered to hold a 10 per cent or greater share in another company if:
- They hold directly or indirectly 10 per cent or more of the share capital of that company.
- They own 10 per cent or more of the issued share capital.
- They possess 10 per cent or more of the voting power of the company.
- They are entitled to receive 10 per cent or more of the company’s distributed income, assuming all income is distributed to the participators.
- They hold rights that would allow them to receive more than 10 per cent of the company’s assets if the company were to be wound up.
What Are Participators?
In this context, the term participators refers to those with interests in a close company. For further details about participators, refer to the guidance provided by the HMRC: CTM60107, which can be found here.
Attribution of Rights
When assessing whether an employee or partner (‘A’) holds a 10 per cent or greater share, certain rights are attributed to them. This includes rights held by:
- Another individual on A’s behalf.
- Another person who may need to exercise those rights based on A’s directions.
- A company controlled by A or A and their associates.
- Any associate or group of associates related to A.
What Are Associates?
The term associates is defined in Part 10 of the Corporation Tax Act 2010. Specifically, guidance can be located via sections 448 and CTM60150, which details how associates are recognised. This information can be accessed here.
It is important to note that being part of the same partnership does not automatically make two individuals associates. However, they can still be considered associates for other reasons beyond their partnership membership.
Control Over Company Affairs
A person may also be classified as holding a 10 per cent or more share in a company if they have, or can create, direct or indirect control over the company’s operations. This means that even if standard ownership criteria are not met, the ability to influence company decisions or management can heighten the SDLT charge.
Example Scenarios
To clarify how these rules work, here are a few scenarios:
- Example 1: If an employee owns 12 per cent of the shares directly and no other person has rights on their behalf, they would be liable for the higher SDLT rate. This is because they clearly meet the direct ownership criterion.
- Example 2: If an employee owns 8 per cent of a company, but their partner owns 5 per cent, and both are considered associates, the combined ownership surpasses the 10 per cent threshold. Consequently, higher SDLT rates would apply.
- Example 3: An employee does not directly own any shares in a company but has the power to control a company that does own 15 per cent of shares in another property-holding company. Here, the employee is treated as having a 10 per cent interest through their ability to exert control, triggering the higher SDLT implications.
Understanding SDLT Liability
It is essential for individuals and entities involved in property acquisitions to be aware of their SDLT obligations. When acquiring residential properties, particularly through companies, understanding the rules regarding share ownership is key to compliance. The liability to pay SDLT can significantly affect costs related to property transactions.
Professional Guidance
For those unsure about their SDLT obligations, it is always advisable to seek expert guidance or consult with a tax professional. Managing property investments through companies can be complex, and having a clear understanding of SDLT implications can help avoid unexpected charges.
Final Thoughts on SDLT for Companies
Understanding the criteria for determining when a higher rate of SDLT applies to non-natural persons is vital for effective property investment. Companies involved in buying residential property should thoroughly assess their shareholdings and control structures to ensure they comply with SDLT regulations.
For further information and in-depth guidance, visit the HMRC website or consult relevant tax advisors.