HMRC SDLT: SDLTM09955 – SDLT – increased rates for non-resident transactions: Completion of contract previously substantially performed – para 17 Sch 9A FA03

SDLT Increased Rates for Non-Resident Transactions

This section of the HMRC internal manual discusses the increased rates of Stamp Duty Land Tax (SDLT) applicable to non-resident transactions, specifically focusing on the completion of contracts previously substantially performed under paragraph 17 of Schedule 9A of the Finance Act 2003.

  • Details the conditions under which increased SDLT rates apply.
  • Explains the concept of substantial performance in contract completion.
  • Outlines the legal framework provided by Schedule 9A FA03.
  • Intended for internal use by HMRC staff.

Understanding SDLT for Non-Resident Transactions

Introduction to SDLT

Stamp Duty Land Tax (SDLT) is a tax that people pay when buying property or land in England and Northern Ireland. There are special rules that apply when the buyer is a non-resident. This article focuses on the rules for increased rates of SDLT for non-resident transactions, specifically when a contract has been substantially performed before completion.

Key Concepts

1. Substantial Performance
– Substantial performance means that most of the important parts of the contract have been completed, even if the final details have not been finalised.
– For example, if a buyer pays most of the agreed price and is given access to the property, that could indicate substantial performance.

2. Completion
– Completion is when the legal ownership of the property is officially transferred from the seller to the buyer.
– This usually happens when the buyer pays the remaining balance and documents are signed.

3. Notifiable Transactions
– Both substantial performance and completion are considered significant events that require SDLT to be reported.
– In this context, both actions are called ‘notifiable transactions.’

4. Residence Test
– The residence test examines whether a buyer is considered a resident or non-resident at the time substantial performance occurs.
– If a buyer is a non-resident when substantial performance happens, then certain extra SDLT rates may apply.

5. Non-Resident Transactions
– A transaction is classified as non-resident if the buyer does not live in the UK. This has tax implications, particularly leading to higher SDLT rates.
– If the contract’s substantial performance was done by a non-resident, the final completion will also be seen as a non-resident transaction.

Implications of Substantial Performance on SDLT

When a buyer has substantially performed a contract before completion, it has important implications for SDLT. According to SDLTM09955, the following points are key:

– If a buyer is non-resident at the time of substantial performance, they may have to pay the increased SDLT rates.
– Furthermore, when the contract is eventually completed, if the completion is also viewed as a chargeable notifiable transaction, it will remain a non-resident transaction.

Examples

To clarify the rules regarding substantial performance and non-resident transactions, here are some straightforward examples:

1. Example 1: Substantially Performed by a Non-Resident
– A non-resident buyer agrees to buy a flat in London and pays most of the purchase price before there is any official transfer of ownership. The buyer is allowed to move in and starts renting out the flat.
– In this case, because substantial performance was completed while the buyer was non-resident, the completion of the transaction will also be classified as a non-resident transaction, and higher SDLT rates will apply.

2. Example 2: Resident Buyer and Non-Resident Completion
– Suppose a resident buyer makes a commitment to purchase a house and pays most of the price, allowing them to occupy the property. Shortly before completing the sale, the buyer moves abroad and becomes a non-resident.
– Here, even if substantial performance occurred while the buyer was a resident, the completion is treated differently. If the completion is a chargeable notifiable transaction and is completed when the buyer is now a non-resident, the higher SDLT rates are applicable.

Notifying SDLT for These Transactions

Both substantial performance and completion must be reported to HMRC for SDLT purposes.

– The buyer (or their representative) must submit the relevant information regarding both events.
– The notification should include details such as the date of substantial performance, the date of completion, and the residency status of the buyer at both points in time.

Other Considerations

– Non-residents buying property may also be liable for other taxes in addition to SDLT, such as the Annual Tax on Enveloped Dwellings (ATED) if the property is owned through a company.
– It is advisable for non-residents to seek professional advice to ensure compliance with all tax obligations.

Resources for Further Information

– For general guidance regarding contracts and substantial performance, please refer to SDLTM07700.
– If you are affected by these rules, consider contacting a tax advisor who can provide tailored advice based on your specific situation.

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