HMRC SDLT: SDLTM05010 – Scope: How much is chargeable: Contingent, uncertain or unascertained consideration: General FA03/S51

Principles and Concepts of Chargeable Consideration

This section of the HMRC internal manual outlines the scope of chargeable consideration under FA03/S51, focusing on contingent, uncertain, or unascertained consideration. It provides guidance on how these types of consideration are assessed for tax purposes.

  • Explains the concept of chargeable consideration in tax law.
  • Discusses contingent, uncertain, or unascertained consideration.
  • Provides guidelines on tax assessment for these considerations.
  • Part of the HMRC internal manual for tax professionals.

SDLTM05010 – Scope: How Much is Chargeable: Contingent, Uncertain or Unascertained Consideration: General FA03/S51

Understanding Chargeable Consideration

When dealing with property transactions, the amount of money or other value exchanged is known as consideration. This can sometimes be affected by certain conditions or uncertainties, which is why it’s important for buyers to understand how to calculate the correct amount owed for stamp duty land tax (SDLT).

### Key Principles

– Contingent Consideration: This refers to amounts that depend on specific conditions being met in the future. If such a condition exists, the buyer must assume that the amount will eventually be payable when calculating SDLT.

– Uncertain Consideration: Sometimes, the total consideration cannot be clearly defined at the time of the transaction. This may happen if the final amount relies on financial information that is not yet available, such as profits that have not yet been calculated.

### How to Calculate Consideration

1. If There is a Contingency:
– Calculate the consideration based on the assumption that the contingent amount will be paid in full. For instance, if a buyer is purchasing a property for £100,000 but agrees to pay an additional sum if the property value increases in the future, they must calculate stamp duty as if that future sum is definitely payable.

2. If the Consideration is Uncertain:
– In this case, buyers need to make a reasonable estimation of what the final consideration will be by the time of the transaction. For example, if a property is sold for an amount that depends on future earnings, and those earnings will only be confirmed at a later date, the buyer should use the best available information to estimate that amount for SDLT purposes.

### Example of Uncertain Consideration

Let’s consider a scenario where a business is sold for a price of £150,000 but there is an additional payment that will depend on the profit of the business in the next financial year. If the profits earned are expected to lead to an additional £20,000 payment, the buyer would calculate the SDLT based on a total consideration of £170,000 (£150,000 + £20,000), despite the additional payment being contingent on future profits.

This example highlights the need for buyers to assess and predict potential future payments when determining their tax liabilities.

Deferring Payment of SDLT

In some cases, buyers may be able to defer their SDLT payment. This can be done under specific conditions set out in the Finance Act 2003, section 90. If you’re unsure about whether your situation qualifies for deferred payment, you should consult the guidance in SDLTM50900.

### Key Considerations for Deferred Payments

– Ensure to check if your transaction qualifies under the provisions for deferral.
– Always provide reasonable estimates for consideration if future amounts are uncertain.

Reference Example

To illustrate the rules regarding contingent and uncertain consideration, let’s revisit the previous example.

Assume a business transaction in which a property is being sold. The sale price is £120,000, but an extra £30,000 is promised contingent on the business meeting certain performance targets next year.

– In calculating stamp duty, the buyer should assume the total payment will be £150,000 (£120,000 + £30,000), even though the additional £30,000 hasn’t been formally confirmed yet.

If the business performs poorly and the extra payment is never made, the SDLT has already been calculated based on the total expectation.

Importance of Accurate Estimation

Buyers must focus on making accurate estimates when the final transaction consideration is not straightforward. Here are tips to keep in mind:

– Gather all relevant information about potential future payments.
– Consult financial experts if necessary to create the best possible estimate.
– Document how you reached your estimate for future reference.

An accurate estimate protects buyers from underpaying SDLT, which could result in penalties if the final amount payable is highlighted in the future.

Key Takeaways

To wrap things up, remember the following:

– Always calculate stamp duty land tax based on the highest pushed forward consideration when contingencies are involved.
– For uncertain considerations, make reasonable estimates based on available data.
– If you are unsure, always refer to the specific parts of the Finance Act or the relevant SDLT guidance to ensure compliance.

With this understanding, buyers should be better prepared to navigate the intricacies of stamp duty land tax in transactions where consideration is contingent or uncertain. By carefully assessing these factors, buyers can fulfil their tax obligations and avoid potential pitfalls.

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Written by Land Tax Expert Nick Garner.
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