HMRC SDLT: Understanding Incidental Transactions and Exclusions in Stamp Duty Land Tax
SDLTM09260 – What Could Be Incidental: Section 75B
This section explains the criteria for categorising transactions as incidental under Section 75B. It outlines the conditions under which transactions related to property construction, sales, loans, or finance provisions may be considered incidental. The page also discusses the need for apportionment and the impact of exclusion rules on these transactions.
- Transactions may be incidental if related to property construction.
- Sales or supplies other than land can be incidental.
- Loans secured by a mortgage for transaction processes may qualify.
- Other finance provisions for transaction processes can be incidental.
- Partly incidental transactions require just and reasonable apportionment.
- Exclusion rules can override incidental categorisation.
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Read the original guidance here:
HMRC SDLT: Understanding Incidental Transactions and Exclusions in Stamp Duty Land Tax
Understanding Incidental Transactions: SDLTM09260 – What Could Be Incidental
This guidance provides an explanation of what incidental transactions are and how they relate to chargeable interests. It is important for those involved in property transactions to be aware of these concepts, especially when calculating chargeable consideration.
What Are Incidental Transactions?
Incidental transactions are specific types of transactions that occur in connection with certain activities. They are not the main focus of the transaction but play a supportive role. Here are the main scenarios where transactions can be classified as incidental:
- Construction of a Building: If a transaction is conducted for the sake of building construction on property relating to the chargeable interest, it is considered incidental. For instance, buying construction materials to build a new office on the property falls under this category.
- Sale or Supply of Non-Land Items: If a transaction involves the sale or supply of items that are not land, it can be deemed incidental. A good example would be selling office furniture as part of an office relocation.
- Loans Secured by Mortgages: A loan taken out by a person (referred to as P) that is secured by a mortgage can be considered an incidental transaction. This would typically be a situation where P uses the loan to help fund a process that leads to acquiring a chargeable interest. For example, P may take out a mortgage to finance part of buying a property.
- Other Financial Provisions: Any other kind of financing that enables P or someone else to pay for a process that results in the transfer of a chargeable interest also qualifies as incidental. This might include a personal loan taken by a buyer to finance part of the purchase process.
Partial Incidental Transactions
If a transaction is only partly considered incidental, it is important to fairly divide the value of that transaction when calculating the overall chargeable consideration. The apportionment needs to be done in a fair and reasonable way. This is essential to ensure that only the appropriate portions of a transaction are treated as incidental.
Exclusions and Special Rules
There are specific exclusion rules that need to be followed regarding incidental transactions. These rules are detailed in another guidance document, specifically at SDLTM09250. Understanding these exclusions is critical when assessing whether a transaction can be considered incidental.
Priority of Exclusion under Section 75B
In certain situations, a transaction that could otherwise be considered incidental may be excluded from this classification according to Section 75B(4). If this exclusion applies, it takes priority over the incidental classification.
When a transaction is excluded from being classified as incidental, the value from that transaction must be included in the calculation of chargeable consideration for the notional transaction. This means that the financial impact of the transaction must be fully assessed when determining any tax liabilities or obligations.
Examples to Illustrate the Concepts
Example 1: Construction-Related Transaction
Imagine a property developer purchases scaffolding for a new building project on a site they own. The purchase of that scaffolding is an incidental transaction related to the chargeable interest of the property, as it directly supports the construction efforts.
Example 2: Loan for Purchase
A buyer, P, wants to purchase a commercial building. To help with the purchase, P takes out a loan against another property they own, secured by a mortgage. This loan is treated as an incidental transaction because it facilitates the acquisition of the chargeable interest in the commercial building.
Example 3: Partial Incidental Transaction
A company decides to buy fixtures and fittings worth £10,000 as part of their acquisition of a commercial property. If the fixtures and fittings are valued at £2,000 as purely incidental (for example, because they would normally be included with the property), then they must divide the total acquisition cost fairly. Thus, they would consider only the £2,000 as an incidental transaction when calculating the chargeable consideration for the notional transaction.
Example 4: Exclusion Application
Suppose a company enters into an agreement to buy a piece of land valued at £500,000 and simultaneously agrees to pay £50,000 for consultancy services associated with the purchase. If the consultancy services fail to qualify as incidental according to Section 75B, then the £50,000 would need to be included when calculating the total chargeable consideration for the land acquisition.
Important Notes for Consideration
- Always evaluate whether a transaction qualifies as incidental based on its relationship to the chargeable interest.
- If there are multiple components to a transaction, be prepared to assess and apportion them fairly when determining their categorizations.
- Be aware of the relevant exclusion rules that may impact the classification of your transaction.
- Seek professional guidance if you are uncertain whether a transaction should be classified as incidental, as this can have tax implications.
Final Thoughts on Managing Incidental Transactions
Grasping the concepts of incidental transactions is essential for anyone involved in property transactions. Clear understanding helps in ensuring compliance with tax laws and maximising potential benefits. Be proactive in keeping informed about current regulations and guidance from HMRC to navigate incidental transactions effectively.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Understanding Incidental Transactions and Exclusions in Stamp Duty Land Tax
