HMRC SDLT: SDLTM09900 – SDLT – increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies – para 7 Sch 9A FA03

Increased Rates for Non-Resident Transactions

This section of the HMRC internal manual discusses the application of increased Stamp Duty Land Tax (SDLT) rates for non-resident companies involved in chargeable transactions. The guidance is based on paragraph 7, Schedule 9A of the Finance Act 2003.

• Focuses on non-resident companies in relation to SDLT.
• Explains the criteria for determining non-residency status.
• Outlines the implications of increased SDLT rates.
• Provides guidance on compliance with the relevant legislation.

Understanding Non-Resident Companies and SDLT

This article explains how the Stamp Duty Land Tax (SDLT) surcharge applies to non-resident companies involved in property transactions. It highlights key points and offers clarity on what makes a company non-resident for SDLT purposes.

What is the SDLT Surcharge for Non-Resident Companies?

The SDLT surcharge applies to certain companies that are classified as non-resident when they make a chargeable transaction involving land or property in the UK. A company is considered non-resident if it meets specific criteria on the effective date of the transaction, as outlined below.

Criteria for Non-Residency

According to paragraph 7(1) of the relevant legislation, a company will be deemed non-resident if one of the following conditions is true:

• The company is not UK resident for the purposes of the Corporation Tax Acts (see paragraph 7(2)).
• The company is UK resident for tax purposes, but it fits one of the following conditions (see paragraph 7(3)):
  • It is a close company: This refers to a company where the owners, typically fewer than five individuals, have significant control over its activities.
  • It meets the non-UK control test: Here, the company is controlled by non-UK residents in relation to the transaction (see paragraph 7(3)(b)).
  • It is not an excluded company: Certain businesses are exempt from these rules and do not fall under the non-resident classification (see paragraph 7(3)(c)).

Explanations of Key Terms

1. UK Residency

A company is considered UK resident for Corporation Tax purposes if it is incorporated in the UK or if its central management and control is exercised within the UK. If a company does not meet these criteria, it is treated as non-resident.

2. Close Company

A close company is one that is controlled by a small number of shareholders. Typically, this means that fewer than five individuals own more than 50% of the company. This structure can affect the firm’s status concerning the SDLT surcharge.

3. Non-UK Control Test

The non-UK control test determines if a company is under the control of individuals or entities that are not based in the UK. If a company passes this test, it can be considered non-resident for SDLT purposes, even if it is registered in the UK.

4. Excluded Companies

Excluded companies are those specifically identified in legislation that do not fall under the non-resident classification for SDLT surcharge purposes. Understanding whether a company is excluded can help clarify its tax responsibilities.

Special Cases and Further Information

There are special rules for certain scenarios, such as:

• Co-Ownership Authorised Contractual Schemes: These schemes are particular types of investment or property ownership arrangements that may have different rules when it comes to SDLT.
• Financial Institutions and Alternative Property Finance Arrangements: Transactions involving financial institutions that provide property finance may also have unique SDLT considerations.

For more details about these special rules and how they apply, you can refer to the guidance on SDLTM09945 and SDLTM09950.

Examples of Non-Resident Company Scenarios

To illustrate how these rules apply, here are some examples:

• Example 1: A company incorporated in Bermuda is looking to purchase property in the UK. Since it is not resident in the UK for Corporation Tax purposes, it qualifies as a non-resident company for SDLT, and hence the surcharge applies.
• Example 2: A UK-based company is owned primarily by five shareholders, who make up more than 50% of the shares. If those shareholders are all UK residents, the company is considered UK resident for SDLT purposes. However, if the majority of shares are held by non-residents, it could meet the non-UK control test and thus qualify as a non-resident company, subjecting it to the surcharge.
• Example 3: A UK company that has a significant number of overseas investors may still be classified as a non-resident for SDLT if it meets the non-UK control test and is deemed a close company.

Conclusion

The classification of a company as non-resident is essential for understanding its obligations regarding the SDLT surcharge. By considering the company’s residency status and its ownership structure, businesses can determine how the SDLT rules apply to their transactions.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09900 – SDLT – increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies – para 7 Sch 9A FA03

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