Read the original guidance here:
HMRC SDLT: SDLTM26020 – Reliefs: Charities relief

Guidance on Charities Relief for Stamp Duty Land Tax

Understanding Charities Relief

Charities relief allows charitable organisations to pay less or no stamp duty land tax (SDLT) when they acquire land or property. This relief is essential for charities, as it helps them use more of their funds for charitable activities instead of tax payments.

When Is Charities Relief Withdrawn?

Relief may be withdrawn under certain conditions. If any of the following happens within three years of the transaction where the charities relief was initially claimed, the relief can be revoked:

• The charity ceases to exist solely for charitable purposes.
• The property acquired, or any related property, is used for purposes that are not charitable.
• The charity still holds the property or a related interest that was acquired during the transaction.

Implications of Withdrawing Relief

If the relief is withdrawn, the charity may be required to pay stamp duty land tax that would have applied if the charities relief had not been claimed. This amount depends on what the charity had acquired during the relevant transaction and is still holding.

For example:
– If a charity purchases a building for £1 million and claims charities relief, it pays little or no SDLT at that time.
– If within three years, the charity starts using that building for purposes other than charity-related activities, SDLT will become chargeable again.
– The tax owed would be calculated based on £1 million as if no relief had been claimed.

How to Calculate the Amount Due

The tax amount owed upon the withdrawal of relief is calculated based on:
– The initial acquisition value during the transaction.
– The proportion used for non-charitable activities.

For instance, if the charity has sold part of the property or is using only 50 percent for charitable purposes, the relief withdrawal calculation would take into account only the percentage still held for non-charitable uses.

Filing a New Land Transaction Return

When the relief is withdrawn, the charity must complete a new land transaction return and pay the applicable stamp duty land tax. This is required to make sure everything is updated according to the current use of the property.

For more details on filing, refer to SDLTM50400.

Examples of Relief Withdrawal

Here are some scenarios to illustrate how relief can be withdrawn:

Example 1: Ceasing Charitable Purpose

A charity operates a community centre. Within two years of acquiring the property, the charity decides to host pay-to-enter events for profit. Since the primary purpose has changed from charitable to commercial, relief is withdrawn, and the charity must pay SDLT based on the full value of the property.

Example 2: Non-Charitable Use

A charity buys a building to run a shelter but later decides to rent out part of the property to a commercial entity. Even though the charity still exists, the portion used for commercial purposes will trigger relief withdrawal, and SDLT becomes payable on that part.

Example 3: Transfer of Interest

A charity obtains a piece of land for creating a park but later transfers a part of that land to another company for development. The relief might be adjusted based on how much of the originally purchased land is still held for charitable purposes.

Further Considerations

It is essential for charities to document their purposes and activities closely. Changes in how the property is used or changes in the charity’s operational objectives may lead to tax liabilities.

Seeking Guidance

Charities unsure about their eligibility for relief or the implications of transactions should seek advice. Proper guidance can help navigate complications that could arise from changes in property use.

For more information on this topic, you can visit the dedicated page at SDLTM26020 – Reliefs: Charities relief.