HMRC SDLT: SDLTM09575 – 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: occupation by a non-qualifying individual FA03/SCH4A/PARA5A
Principles and Concepts of SDLT Chargeability
This section of the HMRC internal manual explains when Stamp Duty Land Tax (SDLT) is chargeable at a higher rate for certain acquisitions of residential property by non-natural persons. It covers the following key points:
- Definition of non-natural persons and their relevance to SDLT.
- Criteria for higher rate SDLT charges under FA03/S55/SCH4A.
- Conditions under which occupation by a non-qualifying individual affects SDLT liability.
- Implications for property acquisitions under specific legislative provisions.
Understanding SDLT Higher Rates for Non-Natural Persons
What is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax, commonly known as SDLT, is a tax that you pay when you purchase property or land in England and Northern Ireland. The amount of SDLT you owe depends on the purchase price of the property and certain other factors related to the buyer and the property type.
Higher Rate Charge on Residential Properties
There is a higher SDLT rate for certain buyers, especially for property purchases made by non-natural persons. Non-natural persons typically include entities like companies or partnerships rather than individual human beings. These entities are subject to higher SDLT rates when buying residential properties.
When Does the Higher Rate Apply?
A key concept under the FA03/S55/SCH4A rules is that non-natural persons are typically charged a higher rate of SDLT when acquiring residential property. This higher rate is set at 15% for certain situations.
Exclusions to the Higher Rate
There are exclusions to this higher rate. According to FA03/SCH4A/PARA5, if you are buying a residential property, you may be exempt from the higher rate if specific conditions apply. However, one important exclusion is tied to the occupation of the property by a non-qualifying individual.
What is a Non-Qualifying Individual?
A non-qualifying individual is typically someone who does not meet the eligibility criteria for certain reliefs or exemptions that would typically apply under SDLT policies. In many cases, this may include individuals who have certain tax statuses or residency requirements that disqualify them from qualifying for lower rates.
Impact of Permitting Occupation by Non-Qualifying Individuals
If a property is acquired with the intention that a non-qualifying individual will be allowed to occupy it, the exclusion from the higher rate charge will not apply. This means that despite meeting other criteria, if it is intended for a non-qualifying individual to live in the property, the buyer will have to pay the higher rate of 15%.
Timeframe for Occupation
There is a critical timeframe to be aware of: if the non-qualifying individual is allowed to occupy the property within three years of the purchase date, any initial exclusion is removed. Consequently, the buyer will be required to submit another SDLT return and make an additional payment of the higher SDLT amount due.
Example Scenarios
To make these concepts clearer, let’s look at some examples:
– Example 1: Company Buying a Residential Property
A company purchases a residential property for £1 million and intends for one of its employees, a non-qualifying individual, to move in. Because they intended for this person to occupy the property, the company will need to pay the higher SDLT rate of 15%, which amounts to £150,000.
– Example 2: Property Purchased without Non-Qualifying Individual Occupation
A partnership buys a residential property for £1.5 million without any intention for non-qualifying individuals to reside there. They may fall under the exclusion and only pay the standard rate of SDLT, which would be lower than if the higher rate had applied.
– Example 3: Occupation After Purchase
A limited company buys a residential property targeting the standard rate, and the intent is for a qualifying individual to occupy it. However, if the actual situation changes, allowing a non-qualifying individual to occupy it within three years, the company must notify HMRC and pay the 15% rate retroactively.
Withdrawal of Exclusion
If a property’s intended use changes after the purchase—for instance, if a non-qualifying individual ends up occupying it within three years—this can lead to what is known as the withdrawal of the exclusion. When this happens, the buyer will need to file a different return for SDLT and pay the additional tax owed. More information about this process can be found on the HMRC website here: Withdrawal of exclusion (SDLTM09660).
Importance of Accurate Records
It is vital to maintain accurate records of transactions and intentions regarding property occupation. If HMRC audits a transaction and finds that a non-qualifying individual has occupied the property without proper disclosure, the buyer can face significant financial penalties alongside the SDLT owed.
Advice for Non-Natural Persons
For non-natural persons considering the purchase of residential property, it is advisable to:
– Consult a tax professional to understand their obligations under SDLT.
– Carefully consider who will occupy the property post-purchase and whether they qualify under current regulations.
– Be proactive in keeping HMRC informed about any changes to the use of the property or the status of occupants.
Final Thoughts on SDLT Compliance
Navigating the regulations surrounding Stamp Duty Land Tax can be complex, especially for non-natural persons. By understanding the implications of property occupation by non-qualifying individuals, you can better prepare for the potential financial obligations that may arise from SDLT considerations.
In summary, it is essential to be aware of the conditions under which the higher rate applies and to ensure compliance with the relevant SDLT legislation to avoid unexpected costs.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09575 – 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: occupation by a non-qualifying individual FA03/SCH4A/PARA5A
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