HMRC SDLT: SDLTM09905 – SDLT – increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies, first condition – para 7(2) Sch 9A FA03
Principles and Concepts of SDLT Increased Rates for Non-Resident Transactions
This section of the HMRC internal manual outlines the conditions under which companies are considered non-resident for Stamp Duty Land Tax (SDLT) purposes. The focus is on the first condition as per paragraph 7(2) of Schedule 9A FA03.
- Defines non-resident status in relation to chargeable transactions.
- Explains the implications for companies under SDLT regulations.
- Details the criteria set out in the legislation.
- Provides guidance on compliance and application of increased rates.
Understanding Non-Resident Companies for SDLT Surcharge
When a company takes part in a property transaction that incurs Stamp Duty Land Tax (SDLT), it is important to assess whether the company is classified as non-resident. This classification affects whether clients must pay an additional SDLT surcharge. The following explains how to determine a company’s status as non-resident and what that means for SDLT.
Definition of a Non-Resident Company
A company is considered non-resident in relation to a chargeable transaction if, on the effective date of the property transaction, the company does not qualify as resident in the UK under the Corporation Tax Acts.
Company Residence Rules
The rules that define whether a company is resident in the UK are located in Chapter 3 of Part 2 of the Corporation Tax Act 2009. Generally, a company is seen as UK resident for Corporation Tax if:
- It is incorporated in the UK (with a few exceptions).
- The central management and control of its business takes place in the UK.
For more detailed guidance on company residence rules, see INTM120000 onwards.
Examples of Company Residency
The examples below illustrate different scenarios regarding company residency and how they affect SDLT charges.
Example 1: UK Resident Company
Crescent Ltd was incorporated in the UK on 1 December 2020, with its registered office in Wales. On 1 December 2021, Crescent Ltd purchases a freehold residential property in England for £124,000. Since Crescent Ltd is UK resident for this transaction, it is subject to the standard SDLT rates.
Example 2: Another UK Resident Company
Labonair Ltd was incorporated in the Dominican Republic on 1 December 2020. Although its main trading operations are there, the board of directors meets weekly in Edinburgh. It is recognised for Corporation Tax purposes that the company’s central management and control takes place during these meetings in the UK.
On 1 December 2021, Labonair Ltd purchases a 999-year leasehold interest in a residential property in England for £700,000. Given that its management and control is effectively in the UK, Labonair Ltd is treated as a UK resident company for this transaction.
Example 3: Dual Resident Company
Joliet River Ltd was incorporated in the UK on 1 March 2021, but it also has residency status in Jersey. It is accepted that this company is managed and controlled from Jersey, making it subject to the “tie-breaker” clause in the Jersey-UK Double Taxation Agreement. This means Joliet River Ltd is considered a ‘treaty non-resident’ (TNR) in the UK for Corporation Tax purposes (more information can be found in INTM120070).
On 1 December 2021, Joliet River Ltd buys a freehold residential property in Northern Ireland for £900,000. Despite being incorporated in the UK, Joliet River Ltd is treated as a non-UK resident company for this transaction, meaning it may be subject to the SDLT surcharge.
Implications of Non-Resident Status on SDLT
When a company is classified as non-resident for the purposes of SDLT, it could face increased rates when participating in property transactions. These additional rates apply specifically to non-resident buyers, which could significantly raise the overall cost of the transaction.
Identifying Non-Resident Companies
To determine if a company is deemed as non-resident, refer to the following criteria:
- Incorporation: Check if the company is incorporated in the UK. If not, it may likely be non-resident.
- Central Management: Assess where the company’s primary management and oversight happens. If it occurs outside the UK, there is a strong chance the company is considered non-resident.
- Tax Agreements: Examine any applicable tax treaties, as these can also influence residency status.
Conclusion of the Examples
The examples highlight how the residency status of a company can drastically affect its SDLT obligations. It is essential for companies to understand their residency status to properly account for any potential surcharges involved in property transactions.
Companies involved in property transactions are encouraged to carefully review their residency status and consult the relevant sections of the Corporation Tax Act to stay compliant with SDLT regulations.
For further guidance on this topic, more information can be found at SDLTM09905 – SDLT – increased rates for non-resident transactions.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09905 – SDLT – increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies, first condition – para 7(2) Sch 9A FA03
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