HMRC SDLT: SDLTM28320 – Reliefs: Alternative property finance

Principles and Concepts of Alternative Property Finance Reliefs

This section of the HMRC internal manual provides guidance on reliefs related to alternative property finance. It outlines the principles and concepts that govern these reliefs, ensuring compliance with tax regulations.

• Explains the eligibility criteria for alternative property finance reliefs.
• Details the application process for claiming these reliefs.
• Describes the tax implications and benefits associated with alternative property finance.
• Provides examples and case studies to illustrate the application of these reliefs.

SDLTM28320 – Reliefs: Alternative Property Finance

The information below relates to how certain property finance arrangements can provide relief from Stamp Duty Land Tax (SDLT). It explains the key ideas and principles that you should know, especially if you are involved in purchasing residential properties using alternative finance methods.

Understanding Alternative Property Finance

Alternative property finance refers to methods of raising funds for property purchases that differ from traditional mortgage routes. This can include arrangements like peer-to-peer lending, investment from family or friends, and crowdfunding. These options can help people acquire property without going through the usual bank channels.

Key Concepts

• Stamp Duty Land Tax (SDLT): SDLT is a tax you pay when you buy a property in the UK. The amount you pay depends on the property price and whether you are a first-time buyer or not.
• Relief: In certain circumstances, you may qualify for a reduction in SDLT when using alternative finance methods.
• Tax Avoidance vs. Tax Evasion: It’s important to understand that tax avoidance is legal and involves planning to reduce your tax liability, while tax evasion is illegal and means not paying the taxes you owe.

Types of Alternative Property Finance

There are several types of alternative property finance options available. Each can have different implications for SDLT relief.

1. Peer-to-Peer Lending

Peer-to-peer lending connects people looking to borrow money directly with individual lenders. This can be a more flexible way to get funds for your property purchase compared to traditional methods.

Example: If you find a peer-to-peer lending platform that offers you a loan to buy a house, you can use the borrowed money as part of your total payment for the property.

2. Family and Friends Funding

Sometimes, family members or friends may help by lending or giving you money to buy a property. This can significantly lower the need for a traditional mortgage.

Example: If your parents give you £30,000 as a gift to help with the deposit on your home, this amount can be treated differently for tax purposes and may affect how much SDLT you owe.

3. Crowdfunding

Crowdfunding is where many people come together to fund a project. In property purchases, this often means getting small amounts of money from multiple investors.

Example: If you raise £100,000 to buy a property by getting £1,000 from 100 different people, this could impact your SDLT calculation.

Reliefs Associated with Alternative Property Finance

Specific reliefs can apply when using alternative finance methods to purchase properties. Understanding these reliefs can save you money on SDLT.

1. First-Time Buyer Relief

If you are a first-time buyer purchasing your first home and using alternative finance (whether through peer-to-peer lenders or crowdfunding), you may qualify for first-time buyer relief.

This relief means:

• The first £425,000 of the property value is exempt from SDLT.
• If the property’s value exceeds £625,000, the relief is not available.

2. Consideration and Gift Rules

When seeking financial assistance from family or friends, it is essential to understand how these contributions are treated under SDLT rules.

If you receive a gift of money to buy a property, it is crucial to establish whether this changes how you report the property purchase for SDLT calculations. If the money is a gift and not a loan, it can potentially lower the overall consideration value, impacting SDLT.

Key Considerations for SDLT Calculations

When you apply for relief, be aware of the following important considerations:

• Documentation: Keeping accurate records of any alternative financing arrangements is essential. You may need to provide proof to HMRC when finalising your SDLT return.
• Market Values: Ensure that the property is valued correctly. The applicable SDLT is calculated based on the price paid or the market value of the property, whichever is higher.
• Transactions and Agreements: Be cautious with transactions and documents. If you are financing your property using a mix of family gifts and peer-to-peer loans, clarify how each part of the funding affects the overall property purchase price.

Fulfilling SDLT Obligations

To fulfill your SDLT obligations when acquiring a property through alternative finance, follow these steps:

1. Complete SDLT Return

You must submit an SDLT return to HMRC within 14 days of completing the property purchase. In this return, disclose the total purchase price and indicate any relief you believe you qualify for.

2. Pay SDLT Due

Based on your return, you must pay any SDLT that is due. Remember that if you qualify for any relief, this will reduce the amount you need to pay.

3. Keep Evidence

Maintain copies of all documents related to your property purchase, including agreements with lenders, gifts from family, and any crowdfunding agreements.

Potential Risks and Considerations

While alternative finance can be beneficial, there are certain risks to be aware of:

• Regulatory Issues: Not all alternative finance options may be regulated. It is essential to research the legitimacy of the platforms or individuals providing funds.
• Financial Impact: Be aware of any fees or interest associated with alternative financing, as these can increase the overall costs of your property purchase.
• Tax Implications: Ensure you understand the tax implications related to alternative financing arrangements, including any potential tax liabilities for lenders or investors.

Final Thoughts on Alternative Finance and SDLT

Understanding the relationship between alternative property finance and SDLT can help you navigate property purchases more effectively. By exploring available reliefs and keeping thorough documentation, you can make informed choices regarding your property financing strategy.

For more information or help with specific situations related to SDLT and alternative property finance, you may want to consult HMRC resources or seek advice from a tax professional.

For further details, you can read more at SDLTM0000.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM28320 – Reliefs: Alternative property finance

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