HMRC SDLT: Understanding Non-UK Control Test for Non-Resident Company Transactions and SDLT Surcharge

Non-UK Control Test for SDLT Increased Rates

The non-UK control test is crucial for determining if a company is subject to increased Stamp Duty Land Tax (SDLT) rates for non-resident transactions. This test is linked to the close company rules in the Corporation Tax Act 2010, specifically focusing on the control a person or entity has over a company. The test involves several modifications to the standard definition of a close company, affecting how control is assessed and who is considered a participator.

  • Control is defined as having direct or indirect influence over a company’s affairs, including voting power and share capital.
  • The non-UK control test modifies the close company definition, focusing on “relevant participators” who are non-resident.
  • Section 439 CTA 2010 is adjusted to consider any number of relevant participators, not just five or fewer.
  • Section 444 CTA 2010 excludes condition A, allowing non-close companies to be considered in control.
  • Section 446 CTA 2010 is omitted, including certain quoted companies with significant public voting power.
  • Section 451 CTA 2010 is subject to limitations, affecting rights and powers attribution.

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Understanding the Non-UK Control Test for SDLT

What is SDLT?

Stamp Duty Land Tax (SDLT) is a tax payable when you buy property or land in England and Northern Ireland. If you are a non-resident or if your company does not have UK control, different rates might apply.

Key Concepts

– Control: This refers to the ability to manage or influence a company. A person is considered to have control if they can direct the company’s decisions in any of the following ways:
– By controlling its operations directly
– Through voting rights
– By having a significant shareholding
– By influencing the company’s income
– By having a say over the company’s assets

– Non-UK Control Test: This is a specific assessment for companies involved in chargeable transactions under SDLT. The test examines whether a company meets the criteria of a close company, with some important adjustments laid out in the relevant legislation.

Close Company Rules

The rules for close companies are defined in Chapter 2 of Part 10 of the Corporation Tax Act 2010 (CTA 2010). A close company is generally one where five or fewer shareholders enjoy control. However, when dealing with SDLT, the non-UK control test modifies these definitions.

How the Non-UK Control Test Works

To see if a company passes the non-UK control test for SDLT, the following points are important:

– The term “participator” is replaced by “relevant participator.”
– Instead of looking for five or fewer participators, you consider any number of relevant participators.
– The application of certain sections of the CTA 2010 might change for SDLT purposes as follows:
– Modification under Section 439: Treat “participator” as “relevant participator” and count any number of them.
– Modified Section 444: This means that a company can be classified as a close company even if controlled by other non-close companies.
– Omitting Section 446: This inclusion allows certain kinds of public companies, where the public owns at least 35% of voting power, to be categorized as close companies under specific conditions.
– Adjustments from Section 451: Attributions of rights and powers will be subject to additional limitations defined in the non-UK control test guidelines.

Defining Relevant Participator

A ‘relevant participator’ is someone who is non-resident in relation to a chargeable transaction and is not a general partner in a limited partnership. The guidelines for determining non-residency involve using specific residence tests and recognizing any special rules that might apply.

Examples of Application

– Example 1: If Company A has multiple shareholders but all are based outside the UK, they may still be considered a close company under the non-UK control test due to the amendments in participator definitions.
– Example 2: If a public company (where at least 35% of shares are held by the public) is involved in a transaction, it could be classified as a close company under the new SDLT definitions, even though it might not typically meet the criteria without the modifications.

Key Sections in CTA 2010 Relevant to the Non-UK Control Test

– Section 439: Discusses participators and their influence on company control. For SDLT, this influences how we define control from a non-UK perspective.

– Section 444: This outlines conditions for company classification that have been adapted for SDLT purposes, allowing for more flexible control assessments.

– Section 446: Provides guidance on quoted companies and how public ownership affects close company status under SDLT.

– Section 451: Explains how rights and powers are attributed in a company context, though adjustments for SDLT testing apply.

Assessing Non-Residency

To determine if a participator is non-resident in relation to a chargeable transaction, apply the suitable residence test. This includes different rules based on geographical presence and operational ties to the UK.

– Presence: Where a participator lives or operates can heavily influence their residency status.
– Special Rules: Additional criteria may come into play, and they should be examined to ensure accuracy in residency assessments.

Final Considerations on the Non-UK Control Test

Understanding the non-UK control test is essential for businesses engaged in property or land transactions where SDLT applies. It requires careful interpretation of participation in company affairs, residency status, and control definitions to ensure compliance and correct tax treatment.

For further details, see the official guidelines at SDLTM09915 – SDLT – increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies, second condition, non-UK control test – para 9 Sch 9A FA03.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Understanding Non-UK Control Test for Non-Resident Company Transactions and SDLT Surcharge

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