HMRC SDLT: SDLTM09681 – 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: Withdrawal of relief – qualifying housing co-operatives FA03/SCH4A/PARA5L

Stamp Duty Land Tax (SDLT) Chargeability

This section of the HMRC internal manual outlines the conditions under which Stamp Duty Land Tax (SDLT) is chargeable, focusing on the higher rate for residential property acquisitions by certain non-natural persons. It details the withdrawal of relief for qualifying housing co-operatives under FA03/SCH4A/PARA5L.

  • Explains SDLT chargeability for non-natural persons.
  • Discusses higher rate implications for residential properties.
  • Details withdrawal of relief for housing co-operatives.
  • References specific legislative provisions.

Understanding SDLT and Withdrawal of Relief for Housing Co-operatives

What is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax (SDLT) is a tax payable on the purchase of property in the UK. This tax is usually based on the price paid for the property. When acquiring residential properties, buyers often need to be aware of specific rates and exemptions, especially if they fall into particular categories like housing co-operatives.

Higher Rate SDLT for Non-Natural Persons

When purchasing residential property, certain buyers may be subject to a higher SDLT rate. The higher rate, set at 15%, applies to non-natural persons, which are entities like companies and partnerships. However, some organisations qualify for relief from this charge.

Qualifying Housing Bodies

A qualifying housing body is an organisation that meets specific criteria, allowing it to avoid the higher SDLT rate. These bodies include:

– A company that is a qualifying housing co-operative
– A registered provider of social housing
– A registered social landlord

If a purchaser’s status changes and they cease to be a qualifying housing body, they may face withdrawal of relief from higher SDLT rates.

Control Period for Housing Co-operatives

The control period refers to a three-year timeframe in which the mortgage needs to be held to qualify for certain reliefs. If certain conditions are met during this period, especially regarding the status of the purchaser, it can lead to a withdrawal of the relief.

When Withdrawal of Relief Occurs

Withdrawal of relief will happen if, during the control period, the purchaser no longer qualifies as a housing body. This can occur in the following instances:

– The purchaser changes its status and is no longer a qualifying housing body.
– The organisation ceases to exist, whether through amalgamation with another entity or conversion to a different type of business.

The withdrawal can also occur if a successor takes over the obligations of the purchaser, and another condition is met.

Conditions Leading to Withdrawal of Relief

There are two main conditions that can lead to relief being taken away:

– Condition A: This condition applies if the successor is not a qualifying housing body on the day they take over, and the original purchaser held a higher threshold interest or a related chargeable interest just before the takeover.

– Condition B: Conversely, this condition applies if the successor is a qualifying housing body when they take over but subsequently lose that status during the control period. In this case, they must have held the higher threshold interest or derived chargeable interest just before their change in status.

These conditions ensure that relief is properly managed and not misused across different ownership situations.

Implications for Successors

If a relief withdrawal occurs due to either of the conditions mentioned, the successive owner must complete a further SDLT return and pay any additional tax due as a result of the withdrawal.

Examples of Withdrawal of Relief

To illustrate these concepts clearly, here are some examples that show how the withdrawal of relief can occur:

Example 1

Housing Co-operative A purchases a property on 10 March 2021 at a cost of £750,000. Because it qualifies as a housing co-operative, it does not face the 15% higher rate tax. However, during the control period, Co-operative A changes its rules to allow members to transfer their shares. Since it is no longer classified as a qualifying housing body, the relief is withdrawn at that point.

Example 2

Housing Co-operative B buys a property on 16 April 2021 for £1 million. As it fits the definition of a qualifying housing co-operative, it is exempt from the higher SDLT rate. However, during the control period, Co-operative B ceases to exist. After this, a new entity, C Ltd, takes over the obligations of Co-operative B. Since C Ltd is not a qualifying housing body, Condition A is met, and the relief is withdrawn. C Ltd is then required to file another return and pay the additional SDLT.

Example 3

Housing Co-operative D acquires a chargeable interest in a property costing £900,000 on 19 October 2021. Initially, it does not apply the 15% higher rate as it is a qualifying housing co-operative. However, during the control period, Co-operative D ceases to exist, and Co-operative E takes over its responsibilities. At this point, no relief is withdrawn because Co-operative E qualifies as a housing co-operative.

Later, Co-operative E decides to change its rules to allow member share transfers. At this moment, it no longer qualifies as a qualifying housing body, leading to the withdrawal of relief. Co-operative E must then complete a further return and pay the appropriate SDLT.

Key Takeaways

– Buyers of residential property should understand the importance of their status as a qualifying housing body, particularly when dealing with higher rates of SDLT.
– The definition of a qualifying housing body includes specific organisations such as housing co-operatives and registered social landlords.
– Withdrawal of relief can occur if the status of the purchasing organisation changes during the control period.
– If relief is withdrawn, the responsible party must notify HMRC and pay any additional taxes owed.

This explanation clarifies how SDLT applies to housing co-operatives and what steps must be taken if there is a change in their qualifying status. Understanding these rules helps in managing tax obligations effectively.

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Written by Land Tax Expert Nick Garner.
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