HMRC SDLT: SDLTM09920 – SDLT – increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies, second condition, non-UK control test, general partners – para 9(7) Sch 9A FA03
Principles and Concepts of SDLT Increased Rates for Non-Resident Transactions
This section of the HMRC internal manual outlines the criteria for increased Stamp Duty Land Tax (SDLT) rates applicable to non-resident transactions. It focuses on the non-UK control test for companies, as specified in paragraph 9(7) of Schedule 9A of the Finance Act 2003.
- Defines non-resident status in relation to chargeable transactions.
- Explains the second condition for companies under the non-UK control test.
- Discusses the role of general partners in determining non-residency.
Understanding SDLT Increased Rates for Non-Residents
Introduction
In this article, we focus on the rules surrounding the Stamp Duty Land Tax (SDLT) surcharge that applies to non-residents when they engage in certain property transactions in the UK. Specifically, we explore the non-UK control test for companies involved in these transactions, particularly with reference to limited partnerships and their partners.
Key Terms and Definitions
- SDLT: Stamp Duty Land Tax is a tax you pay on property purchases in England and Northern Ireland.
- Non-resident: A person or company that does not meet the specified criteria for residence in the UK.
- Relevant participator: Individuals or entities that have sufficient rights in a company that might affect the application of the SDLT surcharge.
- General partner: A member of a limited partnership who has unlimited liability and typically manages the business.
- Limited partner: A member of a limited partnership whose liability is limited to their capital contribution.
The Non-UK Control Test
For SDLT purposes, a company may be considered a non-resident if it fails the non-UK control test. This test is important in deciding if the SDLT surcharge applies to property transactions.
Who is a Relevant Participator?
For the surcharge rules, the role of a general partner is key. According to paragraph 9(7) of the legislation, a general partner in a limited partnership is not treated as a relevant participator unless they can claim rights that allow them to receive more than 1% of the company’s assets in case of liquidation or other circumstances.
Example Scenario
Let’s look at a detailed example involving a limited partnership named Hollow LP.
The Structure of Hollow LP
– Dominic: General partner with a 0.5% share.
– Eva: Limited partner with a 49.25% share.
– Hope: Limited partner with a 49.25% share.
Hollow LP fully owns a company called Inadu Ltd, which is recognized as a UK resident under Corporation Tax laws. Inadu Ltd is classified as a ‘close company’ and does not fall under any exemptions.
Property Purchase Details
On 1 February 2025, Inadu Ltd purchases a freehold residential property in Northern Ireland for £850,000. To determine whether the company is non-resident regarding this transaction, we must apply the non-UK control test noted in paragraph 9 of the SDLT guidance.
The Control Test and Partners’ Residence Status
– The control test relates to tax regulations outlined in sections 450 and 439 of the Corporation Taxes Act 2010.
– This test looks at the residence status of the partners in Hollow LP rather than the partnership itself.
Evaluating Partner Residences
The residence status of each partner from 2 February 2024 to 1 February 2025 is as follows:
– Dominic: Spent 150 days in the UK → Non-resident.
– Eva: Spent 275 days in the UK → UK resident.
– Hope: Spent 360 days in the UK → UK resident.
Implications for the Non-UK Control Test
As the general partner, Dominic has management control over Inadu Ltd. However, since his share and voting rights are only 0.5%, paragraph 9(7) indicates that his status as a general partner does not meet the relevant participator criteria. Therefore, the following implications arise:
– Dominic’s non-resident status: It does not influence the assessment under the non-UK control test.
– Relevant participators: Since Dominic is not considered a relevant participator for this transaction, Hollow LP is not deemed to be a relevant participator with respect to Inadu Ltd.
Conclusion on SDLT Applicability
Since the non-UK control test is not satisfied, Inadu Ltd’s purchase of the property on 1 February 2025 does not attract the SDLT surcharge.
Additional Notes
– General partners need to be aware of their shareholdings and rights in the company to ascertain their status under SDLT rules.
– It’s important to keep accurate records of each partner’s presence in the UK to establish residency for tax assessments accurately.
– Companies must also consider their structures carefully as these can impact tax obligations linked to property transactions.
For more detailed guidance on SDLT and related tax matters, you may consult further resources available on relevant HMRC pages.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09920 – SDLT – increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies, second condition, non-UK control test, general partners – para 9(7) Sch 9A FA03
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