HMRC SDLT: SDLTM09210 – The notional land transaction: Section 75A (1)(c)

Principles and Concepts of Notional Land Transactions

This section of the HMRC internal manual provides guidance on the notional land transaction under Section 75A(1)(c). It outlines the principles and concepts involved in determining tax liabilities for land transactions.

• Explanation of notional land transactions and their implications.
• Details on Section 75A(1)(c) and its application.
• Guidance on assessing tax liabilities for complex land transactions.
• Clarification of HMRC’s approach to enforcing these regulations.

Understanding Section 75A and SDLT

This article explains Section 75A of the Stamp Duty Land Tax (SDLT) guidance, particularly focusing on the third condition under Section 75A(1)(c). It provides an overview of key concepts and principles, using clear examples to ensure understanding.

What is Section 75A?

Section 75A is part of the SDLT legislation. It helps determine when a transaction can be regarded as a ‘notional land transaction’ rather than a real one, specifically aiming to assess the amount of SDLT owed. This section of the law is particularly applicable in complex property transactions where multiple dealings occur. The purpose is to prevent tax avoidance and ensure fairness in taxation related to property transfers.

Third Condition: Section 75A(1)(c)

The third condition that must be satisfied under Section 75A is outlined in Section 75A(1)(c). This condition states:

• For it to hold true, the total SDLT payable for the actual transactions in a given scheme must be less than the SDLT that would be charged on a ‘notional land transaction’.
• A notional land transaction refers to the hypothetical situation where a chargeable interest owned by Party V is sold and then bought by Party P.

Key Terms Explained

Chargeable Interest

A chargeable interest is a legal term for rights or interests in land or property that can attract SDLT. Common examples include freehold and leasehold estates. The implications of transferring a chargeable interest involve the payment of SDLT.

Notional Land Transaction

A notional land transaction replaces actual transactions that have taken place in certain conditions. Instead of reviewing all scheme transactions when they involve land, the focus shifts to the hypothetical scenario of the chargeable interest moving from V to P. This simplifies the assessment of taxes owed regarding complex property transactions.

When is the Third Condition Met?

For the third condition to be met, it’s essential to assess the tax due on the notional transaction in comparison to the actual scheme transactions. Here is how to consider this condition more clearly:

• Actual Scheme Transactions: These are the transactions that have occurred in reality and can involve different parties and dealings.
• Notional Transaction: You replace all the scheme transactions that involve land with one theoretical transaction involving the transfer of V’s chargeable interest to P.

It is crucial to evaluate the notional acquisition by P of V’s chargeable interest. You should not focus on any further transactions that might come from this acquisition.

Reliefs and Exclusions Relating to Section 75A

Section 75A will not apply if the comparison shows that the reduced SDLT is only due to the following exemptions:

• Section 71A – Alternative Property Finance: This section relates to specific financing arrangements that might allow for a lower SDLT charge (refer to SDLTM28100).
• Section 72 – Alternative Property Finance in Scotland: This has been repealed for deals that had an effective date from 1 April 2015 onwards.
• Section 72A – Further Alternative Property Finance in Scotland: Like Section 72, this provision was repealed effective from 1 April 2015.
• Section 73 – Alternative Property Finance: Similar provisions that allow for tax reductions (see SDLTM28400).
• Schedule 9 – Right to Buy and Shared Ownership: This section provides specific circumstances in which SDLT may be treated differently (see SDLTM27000).

Combining Reliefs

Even if one of these exclusionary clauses applies, Section 75A may still be relevant if other reliefs are involved. This means a transaction could still be scrutinised under Section 75A, even if it also falls under exemptions offered by the sections or schedules listed above.

Conclusion of Application

Identifying the terms and relationships between different property transactions can be challenging. The section aims to clarify the taxation issues that arise from them. When evaluating transactions that could be evaluated under Section 75A, it’s important to remember to replace scheme transactions with the notional model and assess the SDLT comparisons correctly.

By understanding and applying these principles, property owners and investors can better navigate the complexities of SDLT and ensure compliance with the tax regulations that govern property transactions in the UK.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09210 – The notional land transaction: Section 75A (1)(c)

View all HMRC SDLT Guidance Pages Here