HMRC SDLT: SDLTM09555 – Scope: when is Stamp Duty Land Tax (SDLT) chargeable: higher rate charge for acquisitions of residential property by certain non-natural persons FA03/S55/SCH4A: property rental businesses FA03/SCH4A/PARA5
Principles and Concepts of SDLT Higher Rate Charge
This section of the HMRC internal manual provides guidance on the higher rate charge of Stamp Duty Land Tax (SDLT) applicable to acquisitions of residential property by certain non-natural persons, as outlined in FA03/S55/SCH4A. It specifically addresses the implications for property rental businesses under FA03/SCH4A/PARA5.
- Explains when SDLT higher rate is chargeable.
- Focuses on non-natural persons acquiring residential property.
- Details the impact on property rental businesses.
- Provides legal references to relevant legislation.
Understanding Stamp Duty Land Tax (SDLT) and Higher Rates for Property Purchases
What is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax (SDLT) is a tax that you pay when you purchase a property or land in the UK. The amount of SDLT you owe generally depends on the price you pay for the property. However, different rules apply if the property is bought in certain situations, such as by a company or for specific business purposes.
When Does the Higher Rate of SDLT Apply?
In some cases, there is a higher rate of SDLT that applies to certain purchases. This higher rate can be as much as 15%. The following sections will explain how and when this higher rate is charged, particularly for non-natural persons, such as companies.
Acquisitions by Non-Natural Persons
A non-natural person typically refers to companies or other corporate entities. For these kinds of buyers, the standard rules for SDLT might not apply in the usual way. The higher rate of 15% applies when a non-natural person purchases residential property unless specific conditions are met.
Exemption from the Higher Rate
If a non-natural person acquires a property only to use it as a source of rental income or other receipts through a qualifying property rental business, they may not have to pay the higher rate of 15%. Instead, they would pay the standard higher rates.
Example of Exemption
– A property management company buys a block of flats solely to rent them out to tenants. Since the acquisition is intended exclusively for rental income, this acquisition would not incur the 15% higher rate, but the company would pay the standard higher SDLT rates.
Conditions to Qualify for the Exemption
For an acquisition to be eligible for the exemption from the 15% higher rate, the following conditions must be met:
1. The Business Type
– It must be classified as a property rental business. This classification is detailed in Chapter 2 of Part 4, CTA 2009. Note that the requirement for profits to be subject to corporation tax does not apply in this case.
2. Commercial Basis
– The business must operate on a commercial basis, meaning it should be run in a way that aims to make a profit.
Example of Non-Qualifying Business
– A company that buys residential properties to flip them for profit does not qualify for the exemption because it does not operate as a rental business focused solely on generating rental income. Therefore, any SDLT owed would be at the higher 15% rate.
Additional SDLT Requirements
If a transaction is not exempt from the higher rate charge, then additional SDLT might be required after the initial payment if certain rules apply. For more details regarding these circumstances, further guidance can be found in the section on Withdrawal of Relief (SDLTM09660).
Understanding Property Rental Businesses
It is essential to grasp what constitutes a property rental business. The characteristics of a qualifying property rental business include:
– The primary focus on renting out properties rather than selling them.
– Engaging in this activity with the intention of making a profit.
– Operating in a manner consistent with rental businesses generally.
Points to Remember
– A property rental business is defined under specific tax laws and does not require profits to be taxed as corporation tax for the exemption to apply.
– If an acquisition fits within the definition of a qualifying property rental business, it can avail of the exemption from the higher rates.
Resources for Further Guidance
For those looking for additional information about compliance with SDLT and its requirements, consider referring to the following resources:
– For details on when SDLT is charged and how it may be affected by the higher rate for non-natural persons, see SDLTM09835.
– For regulations surrounding the Withdrawal of Relief, refer to Withdrawal of Relief (SDLTM09660).
By understanding these principles and guidelines, buyers can better navigate the complexities of SDLT, especially when considering properties for rental purposes.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09555 – Scope: when is Stamp Duty Land Tax (SDLT) chargeable: higher rate charge for acquisitions of residential property by certain non-natural persons FA03/S55/SCH4A: property rental businesses FA03/SCH4A/PARA5
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