HMRC SDLT: SDLTM04080 – Scope: How much is chargeable: Non-cash consideration: Purchaser is vendor’s employee FA03/SCH4/PARA12

Principles and Concepts of Non-Cash Consideration

This section of the HMRC internal manual discusses the scope of chargeable amounts under FA03/SCH4/PARA12, specifically focusing on non-cash consideration when the purchaser is the vendor’s employee. It outlines the principles and concepts involved in determining the chargeable amount.

Explains the calculation of chargeable amounts for non-cash consideration.
Focuses on transactions involving employees as purchasers.
Details the relevant legislative framework under FA03/SCH4/PARA12.
Provides guidance for HMRC staff on handling such cases.

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Read the original guidance here:
HMRC SDLT: SDLTM04080 – Scope: How much is chargeable: Non-cash consideration: Purchaser is vendor’s employee FA03/SCH4/PARA12

Understanding SDLT for Non-Cash Consideration When the Purchaser is an Employee

This article explains how Stamp Duty Land Tax (SDLT) applies when an employer provides accommodation to an employee. It focuses on the rules regarding chargeable consideration in these situations.

What is Chargeable Consideration?

Chargeable consideration is the amount that is used to calculate how much SDLT is due when buying property. It usually consists of any money paid for the property, but it can also include other forms of payment, known as non-cash consideration. This article specifically addresses scenarios where an employee purchases property from their employer.

Special Rules for Employee Purchases

If the seller is an employer and the buyer is an employee, certain special rules apply. This is important for understanding how chargeable consideration is determined in these circumstances.

Determining Chargeable Consideration

When an employer provides accommodation to an employee, the chargeable consideration for SDLT is determined as follows:

The consideration is the higher of two amounts:

The market value rent of the accommodation
The amount of the accommodation that is treated as employment income for the employee

This means that if the market value rent is greater than the amount classified as employment income, the market value rent will be used as the basis for SDLT. On the other hand, if the employment income amount is higher, that amount will be used instead.

Exemptions from Income Tax

In cases where the provision of accommodation is exempt from being charged as employment income, there will be no chargeable consideration for SDLT purposes. This is significant because it removes the SDLT obligation entirely if the accommodation is not considered part of the employee’s taxable income.

Other Situations

If the employee does not qualify for an exemption and the accommodation does not fall under the rules described above, then the chargeable consideration for SDLT is at least equal to the market value of the property involved in the transaction. This ensures that the SDLT amount reflects the true value of the property, regardless of any employment-related arrangements.

Key Concepts in Summary

To summarise, here are the key points to remember regarding non-cash consideration when an employee purchases property from their employer:

Special rules apply when the vendor is an employer and the purchaser is an employee.
Chargeable consideration is the higher of:

The market value rent of the property
The amount considered as the employee’s employment income

If the provision is exempt from Income Tax as employment income, there is no SDLT chargeable consideration.
If not exempt, the chargeable consideration is at least the market value of the property.

Examples Illustrating Chargeable Consideration

Here are a few examples to clarify these concepts:

Example 1: Employee Income Greater than Market Value Rent

Imagine that an employee is provided with accommodation where the market rent would be £1,000 per month. However, the employer provides the accommodation as part of a package, and for tax purposes, it is treated as £1,200 in employment income. In this case:

The chargeable consideration for SDLT would be £1,200, as this is higher than the market value rent.

Example 2: Market Value Rent Greater than Employee Income

Now, suppose that in another scenario, the same market value rent of £1,000 applies, but the employer has no employment income to declare for the accommodation. Here:

The chargeable consideration for SDLT would be £1,000, since it is the higher amount compared to the employment income.

Example 3: Exempt from Income Tax

Consider a situation where the accommodation provided is considered fully exempt from Income Tax as an employment benefit. In this case:

There is no chargeable consideration for SDLT because the accommodation is exempt from being taxed as employment income.

Example 4: Non-Cash Consideration with Market Value

In cases where an employee acquires property from their employer, and the transaction does not qualify under the previous exemptions, the SDLT chargeable consideration would be based on market value. For instance:

If the market value of the property being acquired is £150,000, the SDLT charged would be based on this amount regardless of the arrangement or the rental value.

Additional Considerations

The rules around SDLT and employment can be quite complex. Here are a few additional points to consider when calculating SDLT in such scenarios:

Always ensure that the correct value is used to determine chargeable consideration. It might require professional valuation of the property to establish market rent accurately.
It is essential to document any agreements with clear references to income classification for tax purposes.
Consulting with a tax professional may be beneficial to navigate specific details and ensure compliance with regulations.

Understanding these elements can help both employers and employees manage their tax obligations effectively regarding property transactions and potential SDLT liability.