HMRC SDLT: SDLTM09110 – The notional transaction: Section 75A (4)

Principles and Concepts of Notional Transactions

This section of the HMRC internal manual explains the principles and concepts related to notional transactions under Section 75A (4). It provides guidance on how these transactions are assessed for tax purposes.

• Defines the concept of a notional transaction.
• Explains the application of Section 75A (4).
• Details the criteria for determining tax liability.
• Offers examples to illustrate the application of these rules.
• Provides guidance on compliance and reporting requirements.

Understanding Section 75A: The Notional Transaction

This guidance discusses Section 75A of the Stamp Duty Land Tax (SDLT) rules, which deals with notional transactions in specific schemes. It is important for property transactions where certain conditions are met. This page clarifies how these notional transactions work, who is responsible for filing, and what obligations arise.

Key Concepts of Section 75A

Section 75A applies when certain conditions are fulfilled. Here are the main points:

• Scheme Transactions: In a property scheme where transactions are made, if they meet the criteria outlined in Section 75A, any land transactions within that scheme are disregarded.
• Notional Land Transaction: Instead of the actual land transactions, a notional land transaction is created. This means the original seller (V) is seen as having disposed of their chargeable interest, while the purchaser (P) is treated as having acquired that same interest.

How Notional Transactions Work

When the conditions for Section 75A are met, the following happens:

• All transaction details that qualify as land transactions are overlooked.
• A replacement transaction is established, known as a notional land transaction. This transaction includes:
• The disposal of the chargeable interest by the seller (V).
• The acquisition of that same interest by the purchaser (P).

Responsibility of the Purchaser (P)

Under these circumstances, the purchaser (P) takes on the legal responsibility for the notional transaction. This means:

• P must file a land transaction return for the notional transaction.
• P is also responsible for paying the applicable Stamp Duty Land Tax (SDLT) based on the notional transaction.

Impact of Non-Land Transactions

It’s important to note that not all scheme transactions are disregarded. Here’s what you need to remember:

• Any transactions that do not qualify as land transactions will still be considered.
• These transactions must be included when calculating the chargeable consideration for the notional transaction.

For more detailed information regarding non-land transactions and how they should be handled, refer to the guidance found in SDLTM09220.

Examples for Clarity

To better understand these concepts, let’s look at a few examples.

Example 1: Compliant Transaction Scenario

Suppose V has a property with a chargeable interest. During a specific transaction scheme, the conditions for Section 75A are met. This means:

• Previous transactions that involved land are disregarded.
• A notional transaction is created where:
• V disposes of the property.
• P purchases the property as a notional transaction.

In this situation, P must now file a return for the land transaction and pay the SDLT required for this notional purchase.

Example 2: Mixed Transactions Trade

Let’s say in another scenario, V is involved in a transaction that includes both land and non-land elements. For instance:

• V is selling a property (land transaction).
• V is also providing a service linked to the property as part of the transaction (non-land transaction).

Since the conditions for Section 75A apply and the land transaction is disregarded, a notional transaction is established. However,:

• The value of the service provided must still be considered when calculating the total consideration for SDLT.
• P must ensure all elements are properly accounted for to avoid issues with HMRC later.

Filing Obligations for the Purchaser (P)

When P is responsible for the notional transaction, here are the key steps P needs to follow:

• P has to file a land transaction return within the time limits specified by HMRC.
• P must calculate the correct amount of SDLT owed based on the notional transaction.

It’s essential for P to complete these actions accurately to fulfil legal obligations and to avoid any penalties.

Further Considerations

Section 75A is quite detailed, and specific conditions must always be checked. Here are some additional points to keep in mind:

• Ensure all transactions in the scheme are reviewed to determine if they meet the conditions for disregard.
• Consider consulting with a tax professional if there is uncertainty about the application of SDLT rules or the process of filing.
• Keep thorough records of all transactions and correspondence in case of future audits or inquiries from HMRC.

Following these guidelines will help ensure compliance with SDLT requirements and reduce the risk of oversights that could result in penalties from HMRC.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09110 – The notional transaction: Section 75A (4)

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