HMRC SDLT: SDLTM30221 – Application: Deemed market value: Example 1

SDLTM30221 – Application: Deemed Market Value: Example 1

This section of the HMRC internal manual provides guidance on the application of deemed market value in tax calculations. It includes an example to illustrate the principles involved.

• Explains the concept of deemed market value in tax contexts.
• Provides a practical example to demonstrate the application.
• Clarifies how deemed market value affects tax assessments.
• Part of the HMRC manual for internal use.

Understanding SDLT and Market Value in Property Transfers

Introduction to Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax (SDLT) is a tax you pay when you buy land or property in England and Northern Ireland. The amount of tax depends on the property’s price and, in some cases, its market value. Knowing how SDLT works can help you understand your financial obligations when acquiring a property.

Key Considerations for SDLT Calculations

When it comes to calculating SDLT, there are important points to consider:

– Connected Parties: Determining if the buyer and seller are connected can affect the SDLT amount.
– Chargeable Consideration: This is the price paid or the market value, whichever is higher in some situations.

Example Explained: Transfer of Freehold Residential Property

Let’s look at a practical example involving two parties – individual A and company B.

Property Transfer Scenario

– Individual A transfers a freehold residential property to company B.
– The agreed payment for this transaction is £170,000.

Steps to Determine SDLT

1. Check Connection Between A and B:
– You first need to determine if individual A is connected to company B.
– According to legislation, they are considered connected if there is a close relationship between them, such as family ties or significant business ties.
– Refer to Section 1122 of the Corporation Tax Act 2010 (CTA10) for more details on what defines a connection.

2. Market Value of the Property:
– If no connection exists, the SDLT will be based on the actual amount paid, which is £170,000. The SDLT rate applicable to this price will be used to calculate the tax.
– If A and B are connected, as per S53 of the Finance Act, the SDLT charged may be based on the property’s market value at the effective date of the transaction, not just the amount paid.

3. Understanding Market Value Scenarios:
– If the property’s market value is assessed at £275,000, the SDLT will be calculated based on this higher value, not the £170,000 paid.
– On the other hand, if the market value is found to be only £150,000, the chargeable consideration remains at £170,000, since that is the amount paid.

Conclusion Regarding Market Value Calculations

In summary, whether individual A and company B are connected influences the SDLT calculations significantly. If they are connected, the market value of the property is key in deciding SDLT; if they’re not, the payment made becomes the focus for tax purposes.

Understanding these details is important when managing property transactions to ensure you take the correct steps in meeting your tax obligations.

For further reading about these practices, visit the specific guidance at SDLTM30221 – Application: Deemed market value: Example 1.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM30221 – Application: Deemed market value: Example 1

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