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HMRC SDLT: SDLTM31800 – Application – Transactions involving Pension Funds

SDLTM31800 – Application – Transactions Involving Pension Funds

When a pension fund buys property, it has to pay Stamp Duty Land Tax (SDLT) just like any other buyer. There are no unique rules specifically for pension funds when it comes to SDLT. This tax will only apply if there is chargeable consideration, meaning something of value is exchanged in the transaction as stipulated in paragraph 1, Schedule 4 of the Finance Act 2003.

What is Chargeable Consideration?

Chargeable consideration refers to anything of value that is passed between parties in a transaction. In the context of property, this can include cash payments or other benefits received as part of the sale or transfer.

• If a pension fund purchases property, the price paid for the property is considered chargeable consideration.
• However, if there is no exchange of money or value, there will be no SDLT payable.

Transfers Between Pension Funds

In some instances, assets and responsibilities can be moved from one pension fund to another. This usually happens in two ways:

• When someone is entitled to a cash equivalent transfer value from their pension.
• When two pension funds merge into one.

During such transfers, if land is passed from the trustees of one pension fund to another, this is seen as acquiring a chargeable interest under FA03/S48. In simpler terms, this means the transfer falls under the rules of SDLT.

Normal Tax Charges Under SDLT

When SDLT is charged, it typically applies based on the consideration—this is the value or money exchanged in the property transaction.

• The usual SDLT charge occurs on the purchase price of the land.
• If the transferee fund or its trustees take on obligations to provide pension benefits, this will not count as chargeable consideration.

Other Forms of Consideration

It’s important to understand that if there are other payments made by the transferee fund or its trustees, this could count as chargeable consideration. Examples include:

• If money is paid by the transferee fund as part of the property transfer, that is chargeable consideration.
• If the transfer of obligations from one fund to another requires a specific payment to be released from obligations by the previous trustees, this also counts as chargeable consideration.

Examples of Transactions

To better understand how these principles work, consider the following examples:

• Example 1: A pension fund purchases a piece of commercial property for £500,000. Here, the £500,000 is chargeable consideration. The pension fund will need to pay SDLT based on that figure.
• Example 2: If pension fund A transfers a property to pension fund B without any exchange of money or assets, then SDLT is not applicable. No chargeable consideration exists in this situation.
• Example 3: Pension fund C merges with pension fund D. During the merger, pension fund C transfers a property valued at £300,000 to pension fund D. If as part of this process, fund C also pays £50,000 to fund D to settle previous obligations, then SDLT will be charged on the total consideration of £350,000.

Understanding Obligations in Pension Fund Transactions

In transactions involving pension funds, it is essential to grasp the concept of obligations:

• Obligations are responsibilities that one fund takes on that relate to benefits for pension members.
• Just by absorbing these obligations, it does not mean that SDLT is automatically due.

If there is more to a transaction than just taking over these obligations, perhaps involving financial payments or other assets, those components may require SDLT to be assessed. Always consider the whole structure of the transaction.

Financial Transactions and SDLT Implications

Even though the fundamental rule is that SDLT applies based on land value, any associated monetary transactions can greatly affect the tax payable:

• If financial settlements or adjustments are made alongside property transfers, it’s crucial to determine if these can institute further chargeable consideration.
• Always document these extra considerations clearly. For example, if a pension fund decides to settle outstanding obligations through a financial payment rather than a simple transfer of property, this can impact SDLT responsibilities.

Registration and Reporting SDLT

Once it’s determined that SDLT is payable, it’s important to handle the registration and reporting correctly:

• You will need to submit an SDLT return to HMRC.
• This return must detail the transaction and amount of SDLT owed.
• Additionally, payment of the tax must be made by the due date, which is usually 14 days after the transaction completion.

Getting Help and More Information

Transactions involving pensions can be complex, and it’s important to ensure that everything is handled appropriately. For specific cases or further guidance:

• Consult HMRC’s official guidance on SDLT.
• Consider seeking advice from a tax professional with experience in SDLT and pension funds.
• Both pension fund managers and trustees should be proactive in understanding their obligations regarding SDLT.