HMRC SDLT: SDLTM20340 – Freeports and Investment Zones relief – alternative finance

Principles and Concepts of Freeports and Investment Zones Relief

This section of the HMRC internal manual provides guidance on the relief available for Freeports and Investment Zones, focusing on alternative finance arrangements. It outlines the principles and concepts involved in claiming relief.

• Freeports and Investment Zones offer tax incentives to stimulate economic growth.
• Alternative finance arrangements are eligible for relief under specific conditions.
• HMRC provides detailed guidance on qualifying criteria and application processes.
• Relief aims to encourage investment and development in designated areas.

Understanding SDLT Relief for Freeports and Investment Zones in Alternative Finance

This article addresses the special relief available under the Stamp Duty Land Tax (SDLT) rules for transactions involving freeports and investment zones, particularly regarding alternative finance arrangements. We will explain the relevant provisions and how they apply to the parties involved in such transactions.

Overview of SDLT Relief Provisions

The rules for SDLT relief related to alternative finance arrangements are found in paragraph 11 of Schedule 6C of the Finance Act. These rules add to the existing regulations in sections 71A and 73 of the Finance Act 2003, which focus on different aspects of land transactions involving financial institutions.

Key Sections Explained

• Section 71A: This section covers situations where land is sold to a financial institution and then leased to an individual or company.
• Section 73: This section applies when land is sold to a financial institution, and then that institution re-sells it to another person.

For more information on sections 71A and 73, please refer to the guidance at SDLTM28005.

Who is the ‘Relevant Person’?

An important point in these provisions is how eligibility for relief is determined. Rather than focusing on the financial institution, eligibility is based on the ‘relevant person.’ This term refers to the individual or entity that enters into the alternative finance arrangement, not the financial institution involved. This distinction is made clear in paragraph 11(3)(a) of Schedule 6C.

Liability for Tax Relief Withdrawal

If relief is withdrawn, the responsibility for paying the tax falls on the ‘relevant person.’ This is outlined in paragraphs 5 and 6 of Schedule 23 of the Finance Act 2021. So, understanding the role of the relevant person is crucial for anyone engaging in transactions under these provisions.

Example Scenario

To illustrate how these rules work in practice, consider the following example:

• A business, the purchaser, arranges for a bank to finance the purchase of land located in a freeport or investment zone. The land costs £2,000,000.
• The bank buys the land and then leases it to the purchaser.
• Since the land is located in a qualifying area, the bank claims relief under the freeport or investment zone provisions for this initial transaction (known as the ‘first transaction’ under paragraph 11(3)(a)).
• Meanwhile, the purchaser qualifies for alternative property finance relief based on the arrangements under section 73(3) of the Finance Act 2003.

Change in Use of the Land

After 12 months, let’s say the purchaser stops using the land in a manner that qualifies for the relief. In this case, the purchaser has to take further action:

• The purchaser must submit an additional return (as per section 81ZA(1)). This is a requirement when the usage of the land changes.
• As a result of this change, the purchaser will now be liable for the SDLT on the £2,000,000 value of the land as outlined in section 85(3).

What Happens if Relief is Reclaimed?

If the relevant person (the purchaser in our example) had initially claimed relief but subsequently did not meet the criteria, they must adjust their claim accordingly. This involves notifying HMRC and paying any tax owed. The essential point is that the tax liability arises when the conditions for relief are no longer satisfied.

Mandatory Returns and Reporting Obligations

It is crucial for businesses engaging in transactions that involve relief to stay compliant with their reporting obligations. Submitting the correct returns is necessary to avoid potential penalties. The relevant person must track how the land is used and report any changes promptly.

Conclusion

Understanding the mechanics of SDLT relief with alternative finance arrangements is essential for businesses looking to make the most of opportunities in freeports and investment zones. Keeping informed about the roles, responsibilities, and reporting requirements can significantly impact financial outcomes related to property transactions.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM20340 – Freeports and Investment Zones relief – alternative finance

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