HMRC SDLT: SDLTM09560 – 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: businesses of trading in or redeveloping properties FA03/SCH4A/PARA5

Principles and Concepts of SDLT Higher Rate Charge

This section of the HMRC internal manual explains when Stamp Duty Land Tax (SDLT) is chargeable at a higher rate for acquisitions of residential property by certain non-natural persons. It focuses on the relevant legislation and conditions under FA03/S55/SCH4A and FA03/SCH4A/PARA5.

SDLT is applicable to property acquisitions by non-natural persons.
Higher rate charge is detailed under specific legislative provisions.
Guidance is provided for businesses trading or redeveloping properties.
Conditions and exceptions are outlined for clarity.

Guidance Image

Read the original guidance here:
HMRC SDLT: SDLTM09560 – 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: businesses of trading in or redeveloping properties FA03/SCH4A/PARA5

Understanding Stamp Duty Land Tax (SDLT) Charges for Property Development

What is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax (SDLT) is a government tax charged on the purchase of property or land in England and Northern Ireland. The amount of SDLT you pay depends on the price of the property and other specific conditions.

Higher Rate of SDLT for Non-Natural Persons

There are special rules for certain entities when acquiring residential properties. Specifically, if the buyer is a non-natural person (like a company or partnership) and they are buying residential property, the higher rate of SDLT may apply. This higher rate is set at 15 percent but may not be applicable if the purchase is for development or redevelopment purposes.

Key Situations Where Higher Rate Does Not Apply

The 15 percent higher rate of SDLT will not apply if the property acquisition is solely for the purpose of developing or redeveloping the property with the intent to resell it. Instead, the SDLT will be calculated at the higher rates specific for additional dwellings.

However, if you claim relief under these conditions, you might need to make an additional SDLT return and payment later on if certain rules come into play.

Definition of Property Development Trade

A property development trade is identified by activities that involve:

– Purchasing property or land
– Developing or redeveloping that property for resale

This includes a variety of actions, such as:
– Refurbishing almost an entire property, which can involve installing new kitchens or bathrooms
– Making extensive modifications to a property like adding extensions
– Demolishing a property entirely and constructing new residential units or commercial buildings
– Selling smaller parcels of the acquired land or granting leases.

Examples of Property Development Scenarios

To clarify how these rules are applied, let’s look at some practical examples.

Example 1: Redevelopment with Intent to Resell

A company buys a dwelling worth £2.5 million. Their goal is to redecorate and then sell the property. Since the acquisition is for the purpose of development, the higher rate charge does not apply. SDLT will instead be charged at the higher rate for additional dwellings.

Example 2: Short-Term Letting due to Market Conditions

Another company acquires a property for £2.5 million with plans to refurbish it for resale. If after renovation they decide to rent it out temporarily because they cannot find a buyer, this does not change the applicability of the higher rate. SDLT will still be charged at the higher rates for additional dwellings, as the original intention was to redevelop and sell.

Example 3: Quick Sale Offer

A company purchases a dwelling for £2.5 million, intending to refurbish it and sell it. Before they start any work, they receive a lucrative purchase offer. As their initial goal was to redevelop for resale, the higher rate charge does not apply and SDLT is payable at the higher rates for additional dwellings.

Example 4: Redeveloping for Commercial Use

A company buys a residential property for £2.5 million with plans to demolish it and build a commercial property in its place. Since the acquisition is solely for redevelopment and resale, the higher rate of 15 percent does not apply, and SDLT is charged at the higher rates for additional dwellings.

Example 5: New Homes for Resale

A developer buys a dwelling for £2.5 million. They intend to knock it down and construct three new houses to sell. The higher rate does not apply; SDLT is charged at the higher rates for additional dwellings, which meets the requirement of having acquired the property for development and resale.

Example 6: Partnership in Property Development

A partnership made up of an individual and a company in the property development business buys a dwelling for £2.5 million to redevelop and resell. Again, the higher rate does not apply, and SDLT is calculated at the higher rates for additional dwellings.

Important Considerations

When determining whether the higher rate of SDLT applies, you must focus on the intentions and actions at the time of the acquisition. It’s crucial that you document your plans clearly and understand how they fit within the definition of a property development trade.

Withdrawal of Relief Conditions

When claiming the exemption for higher rates, it is essential to be aware of potential conditions that may lead to the withdrawal of relief. SDLT will need to be recalculated, and additional payments could be required depending on how the property is used after purchase.

Understanding these regulations can be complicated, so if you have any uncertainties, consider seeking professional advice or consulting HMRC resources.

Please visit the relevant pages for more information and guidance.
– For more details on STLTM0000, visit: SDLTM0000
– For information on the Withdrawal of Relief, check out: SDLTM09660

These resources can provide deeper insights into your obligations and rights regarding SDLT and its implications for your property dealings.