Read the original guidance here:
HMRC SDLT: SDLTM22000 – Reliefs: Compulsory purchase facilitating development

Understanding SDLT and Compulsory Purchase for Development

This section explains Stamp Duty Land Tax (SDLT) rules relating to compulsory purchases that enable development projects. Compulsory purchase means that a government body can acquire land or property without the owner’s consent. This can be necessary for projects that bring about significant public benefit, such as building roads, schools, or housing.

What is SDLT?

Stamp Duty Land Tax (SDLT) is a tax paid when you buy property or land in England and Northern Ireland. The amount of tax you pay depends on the price of the property. This tax applies to both residential and non-residential properties.

When Does SDLT Apply to Compulsory Purchases?

In cases of compulsory purchase, SDLT is calculated on the amount paid for the property or land, including any additional costs that the acquiring authority agrees to pay. Often, this payment can be lower than what a willing seller would expect in an open market sale.

Reliefs and Exemptions for Compulsory Purchase

There are specific reliefs and exemptions available for SDLT in the context of compulsory purchases made to facilitate development. These include:

• Relief Conditions: The compulsory acquisition must be linked to a project that will serve public purposes, like housing or transport improvements.
• Timeframe: Those who acquire land or property through compulsory purchase could be eligible for SDLT relief if they meet certain conditions relating to the timing of the purchase.
• Payment Structure: Relief may also apply if the payment for compensation is structured in a certain way.

To be eligible for these reliefs, the acquiring authority must demonstrate that the purchase is vital for the public interest and development outcome.

Detailed SDLT Rules for Compulsory Purchase in England

The rules governing SDLT for compulsory purchases in England specify several aspects you need to be aware of:

• Calculation of Tax: The SDLT liability is determined based on the value of the land acquired. If the purchase price is lower than the market value, the SDLT will still be calculated on the actual price paid.
• Claiming Relief: Acquiring authorities must submit a specific form when claiming relief from SDLT, detailing the purpose of the purchase and how it meets the relevant criteria.
• Documentation: It’s crucial to maintain adequate records to support any claims made for relief. This includes correspondence about the compulsory purchase order and the valuation evidence used to negotiate payment.

Detailed SDLT Rules for Northern Ireland

In Northern Ireland, SDLT rules for compulsory purchase mirror those in England but may have slight variations. It’s important to understand the local context:

• Tax Calculation: Similar to England, the SDLT for compulsory purchases is calculated on the amount paid, even if it diverges from the market value.
• Relief Process: The process for claiming relief follows similar steps as in England, but may involve different forms unique to Northern Ireland. It’s advisable to check local guidelines.
• Supporting Evidence: Just like in England, it is vital for acquiring authorities in Northern Ireland to keep thorough documentation to back any relief claims made related to compulsory purchase.

Examples of Compulsory Purchase Scenarios

Here are a few examples illustrating how compulsory purchase and SDLT may work in practice:

• Example 1: A local council plans to build a new road that requires acquiring private land. The landowner is compensated £200,000 for their plot, although it may be valued at £250,000 in an open market sale. The SDLT is calculated based on the £200,000 compensation.
• Example 2: A housing development project necessitates the acquisition of multiple plots. The acquiring authority must demonstrate that the purchase will contribute to much-needed housing. If the council pays £1 million for the collection of plots, SDLT would apply to this amount.

Filing Requirements for SDLT in Compulsory Purchases

When a compulsory purchase takes place, there are specific filing requirements that must be followed:

• Submitting Returns: A Return must be filed electronically, regardless of whether SDLT is due or relief is being claimed. This must be submitted within 30 days of the completion of the acquisition.
• Relationship with Other Taxes: Ensure to understand how SDLT interacts with other taxes that may be due from the acquiring authority or from the landowner, as this can affect overall financial planning.

Important Considerations

When dealing with SDLT in the context of compulsory purchase, consider the following:

• Professional Advice: Engaging with professionals such as tax advisors or legal experts can help ensure you meet all requirements and take advantage of any reliefs available.
• Understanding Time Limits: Keep track of any time limits related to SDLT claims and submissions to avoid penalties.
• Impact on Future Sales: Be aware that any relief taken upon a compulsory purchase could have implications for the future sale or development of the property.

Further Information and Resources

For more detailed information and guidance, the following resources may be useful:

• SDLTM22000 – Reliefs: Compulsory purchase facilitating development
• SDLTM22005 – General overview of FA03/S60
• SDLTM22010 – England: Detailed rules
• SDLTM22020 – Northern Ireland: Detailed rules

By understanding the details of SDLT concerning compulsory purchases and the available reliefs, acquiring authorities can ensure they manage their tax liabilities efficiently while contributing to significant developments for the public good.