HMRC SDLT: SDLTM09835 – SDLT – higher rates for additional dwellings: Purchases by companies and other non-individuals
SDLT Higher Rates for Additional Dwellings
This section of the HMRC internal manual discusses the principles and concepts related to the higher rates of Stamp Duty Land Tax (SDLT) applicable to purchases by companies and other non-individuals. Key points include:
- Explanation of SDLT higher rates for additional dwellings.
- Applicability to companies and non-individual entities.
- Guidance on calculating the additional SDLT rates.
- Criteria for determining non-individual purchasers.
- Examples illustrating the application of these rules.
Read the original guidance here:
HMRC SDLT: SDLTM09835 – SDLT – higher rates for additional dwellings: Purchases by companies and other non-individuals
Higher Rates of SDLT for Companies and Trustees Purchasing Dwellings
Introduction
When a company or trustees buy a residential property, they may face higher Stamp Duty Land Tax (SDLT) rates. The details below explain the conditions under which these higher rates come into play.
Conditions for Companies
For a company purchasing one or more properties, certain conditions must be fulfilled for the purchase to be considered a higher rate transaction:
– Condition A: The property is bought for £40,000 or more.
– Condition B: The acquired property does not have a lease that runs for more than 21 years at the time of the purchase.
If a purchase meets both conditions for at least one property, the higher SDLT rates will apply. If none of the properties meet these conditions, the higher rates will not apply.
Purchases by Trustees
The treatment of purchases by trustees can vary based on the type of trust involved. There are three main types to consider:
1. Bare Trust: In a bare trust, beneficiaries have straight right over the property. If they are legally entitled to it, the trustees do not affect the SDLT liability.
2. Life Interest Trust: This is where a beneficiary is entitled to occupy the property for their lifetime or to receive income from it.
3. Other Trusts: This includes discretionary trusts where the trustees decide how to distribute income among various beneficiaries.
Bare Trusts
When a beneficiary has absolute rights to the property, the trustees are not taken into account for SDLT purposes. Instead, the beneficiary is treated as the purchaser.
– For example, if a bare trust’s beneficiaries are eligible to occupy the property, SDLT will be assessed based on their status, not the trustees’.
Life Interest Trusts
For life interest trusts, the higher rates apply based on whether the beneficiary meets specific conditions. Even if the trustees are purchasing the property, it is treated as if the beneficiary is the one purchasing.
– If a beneficiary has another property worth £40,000 or more, and the purchase isn’t replacing their main home, then the higher rates will apply.
Other Trusts
If a trustee is acting on behalf of a trust that is neither a bare trust or a life interest trust, they are treated similarly to companies regarding SDLT.
– In this situation, if the property price is £40,000 or more, and it does not have a lease over 21 years, then the higher rates will apply.
Examples
Example 1: Bare Trust
J and K are trustees of a trust that allows beneficiary L to occupy a property for life. If J and K buy a house using trust funds, they should determine if L, the lifetime beneficiary, meets the SDLT conditions.
– If L has another property valued at £40,000 or more, and the new purchase is not replacing L’s main home, the higher rates will apply.
Example 2: Discretionary Trust
M and N act as trustees for another trust and have discretion over the income from a property. If they buy a dwelling using trust funds, they must consider higher rates similar to a company.
– Thus, if the payment for the dwelling is £40,000 or more and there is no long lease agreement, the higher rates will apply.
Discretionary Trusts with Life Interests
In cases where a discretionary trust purchases a property and allows a beneficiary to live in it or receive income, that beneficiary is treated as the purchaser for SDLT purposes.
– This means that if conditions related to prior ownership and lease duration are met, the higher rates will apply.
Specific Sections and Legal References
The guidance provided aligns with specific paragraphs in the Finance Act 2003. For further details, refer to the following paragraphs:
– Schedule 4ZA: Provides guidelines on SDLT rates applicable depending on various purchase scenarios.
– Paragraphs 3 and 10: Discuss the implications for bare and life interest trusts.
– Paragraph 13: Covers how other kinds of trusts are treated similarly to corporate buyers.
This explanation gives a straightforward overview of when the higher SDLT rates will apply for company purchases and different types of trust purchases, allowing individuals and entities to understand their liabilities more clearly.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09835 – SDLT – higher rates for additional dwellings: Purchases by companies and other non-individuals
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