HMRC SDLT: SDLT Higher Rate Charge Rules for Non-Natural Persons in Property Acquisitions

Stamp Duty Land Tax: Higher Rate Charge for Non-Natural Persons

This section explains the conditions under which Stamp Duty Land Tax (SDLT) relief may be withdrawn for non-natural persons acquiring residential property. The relief is contingent upon specific criteria being met within a three-year control period following the acquisition. If these conditions are not satisfied, the higher rate of SDLT may be charged.

• Relief is withdrawn if the property is not used exclusively for business purposes, such as letting or trading.
• All interests derived from the property must also be used exclusively for business purposes.
• No non-qualifying individual should occupy the dwelling, even if they pay market rent.
• Business activities must commence within the control period, or reasonable steps must be taken to ensure future use.
• Reasonable steps to rent out a property include appointing a lettings agent, redecorating, or making substantial alterations.
• Advertising must be targeted and realistic to meet the criteria for taking steps to rent out the property.

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Understanding When Stamp Duty Land Tax (SDLT) is Chargeable

Stamp Duty Land Tax (SDLT) is a tax that applies to certain property purchases in the UK. Knowing when it is chargeable, especially concerning higher rates for non-natural persons, is vital for property buyers. This article explains key concepts around this tax, particularly around the withdrawal of relief, the requirements for qualifying businesses, and the obligations of purchasers.

What Triggers Withdrawal of Relief?

Relief under the higher threshold of SDLT can be withdrawn if specific conditions are not met during a three-year period following the property acquisition date. The key conditions include:

• The higher threshold interest must be held solely by the purchaser for:
• Running a qualifying property rental business
• A relievable trade
• Trading in, redeveloping, or reselling properties within a property trading business
• Any chargeable interest originating from that higher threshold interest must also be exclusively held for similar purposes as listed above.
• The purchaser should not allow any non-qualifying individual to occupy the property.

If any of these conditions are not met, the SDLT relief can be cancelled, meaning the purchaser may have to pay additional tax.

Understanding Property Rental Business Activities

It is essential to demonstrate that the activities related to business are ongoing. Withdrawal of relief may occur if:

• The business activities have not started yet
• The business has ceased operations
• No reasonable actions are taken by the purchaser to use the acquired property actively in the business

For instance, if a property is acquired for rental purposes but no rental income is generated at the acquisition date, the purchaser can still qualify for SDLT at higher rates for additional dwellings. To maintain this qualification, they must take reasonable steps to let the property. Actions that could be considered reasonable include:

• Hiring a lettings agent to promote the property
• Carrying out redecorations to make the property more appealing
• Engaging in substantial renovations beyond simple redecoration
• Purchasing furniture for the property to improve its rental potential

Conditions for Reasonable Steps

While taking steps to rent out a property, those actions need to be realistically expected to lead to a successful tenancy. For example:

• If a property in Knightsbridge is advertised in Newcastle, this would not qualify as a reasonable step to find a tenant.
• Similarly, if the property is advertised at an unrealistic rent that is unlikely to be achieved, that also does not meet the requirements.

Implications of Allowing Non-Qualifying Individuals to Occupy the Property

Another important aspect to consider is the occupation of the property by non-qualifying individuals. Withdrawal of relief will apply in all situations where a non-qualifying individual is allowed to reside in the property, regardless of whether that person is paying market rent to the owner. This means that property owners must be vigilant about who occupies their properties if they want to maintain their SDLT relief.

Final Thoughts on SDLT and Non-Natural Persons

Understanding these key principles and requirements regarding Stamp Duty Land Tax is essential for anyone looking to purchase property. Keeping track of ownership conditions, ensuring active business efforts, and being cautious about who can occupy the property are all critical for managing SDLT responsibilities effectively.

The guidelines outlined in this article can help provide clarity on the circumstances in which SDLT is chargeable and the higher rates applicable for acquisitions made by certain non-natural persons.

For further details and guidance, you can refer to the HMRC’s specific SDLT guidance pages, such as SDLTM09660 – Scope: when is Stamp Duty Land Tax (SDLT) chargeable: higher rate charge for acquisitions of residential property by certain non-natural persons.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLT Higher Rate Charge Rules for Non-Natural Persons in Property Acquisitions

View all HMRC SDLT Guidance Pages Here