Read the original guidance here:
HMRC SDLT: SDLTM20220 – Freeports and Investment Zones relief – use of land in a “qualifying manner”

Freeports and Investment Zones Relief – Qualifying Use of Land

Understanding Qualifying Use of Land

Qualifying use of land is essential when it comes to tax relief under the freeports and investment zones scheme. The following points describe what qualifies as a suitable use of land by a purchaser or a person connected to them:

• Commercial Trade or Profession: The land must be used by the purchaser or someone they are connected with as part of running a business or professional activity.
• Development for Commercial Use: If the purchaser or a connected person develops or redevelops the land for someone else to use in their business, this also counts as qualifying use.
• Exploitation for Rental Income: The land can be considered qualified if it is used by the purchaser or a connected person to generate rent or other income. However, certain types of rent that are excluded do not qualify.
• Combining Uses: If the land is used in two or more of the ways mentioned above, it will still qualify.

For further details about the key terms mentioned, refer to SDLTM20230. Importantly, the term ‘use in the course of a trade or profession’ also includes activities related to renting out property, as defined in section 3, paragraph 5.

Buying Land for Others to Use

It’s important to note that a purchaser may still qualify for relief even if the land is intended for another individual’s use. For example:

– If Person A buys a factory but intends for Person B, who is not connected to Person A, to operate it, the purchase can still qualify for relief. This is true as long as Person B pays rent to Person A for the use of the factory.

This means that transactions where one person acquires property for the use of another can still benefit from the tax relief under the freeports and investment zones scheme.

Ancillary Use of Land

Another aspect to consider is that land used for purposes complementary to land being used for a qualifying activity may also meet the relief requirements. This is outlined in SDLTM20240.

For instance, if a company uses a large warehouse to store products, the land used for car parking or access routes leading to the warehouse could qualify as ancillary use. This means that even if the ancillary land itself is not a primary business facility, its use in connection with the qualifying business activity makes it eligible for the relief.

Examples of Qualifying Use

To make things clearer, let’s look at some specific examples:

Example 1: A Factory Purchase

– Company X purchases a factory. It plans to operate the factory itself, which relates directly to its manufacturing business. This qualifies because the land is being used in the course of a commercial trade.

Example 2: Development for Leasing

– Individual Y buys an office building and then refurbishes it. After the renovation, she leases the office spaces to various businesses. Even though she is not using the land herself, the purpose of the purchase—developing it for commercial use—qualifies it for relief.

Example 3: Rental Income

– Person Z acquires retail spaces that will be rented out to different shop owners. The income generated from these rent payments counts as exploitation of the land in the course of a commercial trade. Thus, Z qualifies for relief.

Example 4: Multiple Uses

– A landowner, Person A, owns a plot of land that includes a garage, a shop, and some parking spaces. If the shop is operated as a retail business, the garage is rented out, and the parking spaces are rented too, this qualifies under multiple use as described in the qualifying use definitions.

Important Considerations for Claiming Relief

When applying for relief under the freeports and investment zones scheme, there are several factors to keep in mind:

– Ensure that the use of land aligns with the definitions provided for qualifying use.
– The relief applies to purchases where the future use for trade, development, or rental occurs, not just existing uses at the time of purchase.

Exclusions That Impact Qualifying Use

Certain uses of land do not qualify for relief. These exclusions might include:

– Use of land solely for residential purposes, as residential activities do not fall under commercial trade.
– Other types of rental income may also be excluded if they do not relate to business operations or are deemed inappropriate under defined criteria.

Further Details and Resources

For more particulars on categories that influence eligibility, you can check out the relevant guidance available on the HMRC’s website and various sections provided, including the links already mentioned. Understanding the specifics around qualifying uses and ancillary properties can significantly impact the level of relief a purchaser might receive.

In summary, knowing how to categorise property use, understanding relevant exemptions, and recognising the interconnectedness of various land uses are vital for making the most out of freeports and investment zones relief. Always consult the official guidance or seek professional advice if needed to ensure compliance with HMRC regulations.