HMRC SDLT: SDLTM20335 – Freeports and Investment Zones relief – withdrawal of relief – partial disposal

Freeports and Investment Zones Relief – Withdrawal of Relief – Partial Disposal

This section of the HMRC internal manual provides guidance on the withdrawal of relief for Freeports and Investment Zones during partial disposal. It outlines the principles and concepts involved in this process.

• Explains the conditions under which relief can be withdrawn.
• Details the calculation methods for partial disposal.
• Describes the implications for tax liabilities.
• Offers examples to illustrate the application of rules.

SDLTM20335 – Freeports and Investment Zones Relief – Withdrawal of Relief – Partial Disposal

Understanding Control Periods

Control periods apply to land that is sold or disposed of partially. For instance, if someone buys 1000 acres of land but later sells off 500 acres, the control period for the remaining land continues.

Leasing and Control Periods

If a purchaser decides to lease out a part of their purchased land while still owning the freehold, the control period does not end. It continues as long as the purchaser uses their remaining interest in a way that qualifies for the relief.

Key points regarding leasing:
– If the land is leased out and generates rent, this form of use typically qualifies.
– The tenant must not develop the leased land for residential purposes to ensure the relief is maintained.

However, if at any point the purchaser stops using their remaining interest in a qualifying way during the control period that started when they bought the land, the relief can be withdrawn.

Example of Relief Application

Let’s go through a realistic scenario to clarify how this works:

– A purchaser buys 500 acres of non-residential property located within a special tax zone for £5,000,000, with plans to use all of it according to qualifying criteria.
– Since the entire 500 acres is deemed qualifying land, and the full purchase amount of £5,000,000 is chargeable for tax relief, the purchaser is eligible for a significant reduction in tax.

The tax relief applied reduces the amount due from £239,500, which would have been the tax liability without relief.

Effect of Leasing Property

Now, let’s consider what happens after 30 months:
– The purchaser decides to lease a part of their property – specifically, a factory and a car park on 100 acres of the total land. For this lease, they receive a premium of £1,500,000 along with an annual rent.
– Because this lease leads to the retained land generating rental income, the purchaser continues to qualify for tax relief. This means the land is being actively used for business purposes.

If the purchaser had not maintained the qualifying manner of use for the land they still owned, the relief would no longer apply. In such a case, the HMRC would require a further return of £239,500, effectively reclaiming the relief provided initially.

Potential Issues That May Arise

It is important to consider the different scenarios where relief could potentially be withdrawn:
– If within the control period, the purchaser fails to use their retained interest correctly and stops using it in a qualifying manner, this could trigger the loss of the relief.
– Similarly, if the tenant who leases the land decides to use it for a purpose that is not qualifying, such as residential development, the relief would be at risk.

Qualifying Manner of Use

What exactly qualifies as a ‘qualifying manner of use’? Here are some examples:
– The land must be used for commercial activities related to a rental business.
– It should not be involved in any activities that may lead to residential development unless it is part of a planned project that falls under the accepted category of development.

Conclusion on Keeping Relief

It’s essential for purchasers to be vigilant about how their leased land is used to ensure that they receive the full benefit of the tax relief associated with freeports and Investment Zones. Understanding the conditions around control periods and qualifying uses can help prevent unexpected tax liabilities.

For further guidance and information, you can consult the HMRC official resources.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM20335 – Freeports and Investment Zones relief – withdrawal of relief – partial disposal

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