HMRC SDLT: SDLTM21030 – Reliefs: Certain acquisitions of residential property

Reliefs: Certain Acquisitions of Residential Property

This section of the HMRC internal manual provides guidance on reliefs available for certain acquisitions of residential property. It outlines the principles and conditions under which these reliefs can be applied, ensuring compliance with tax regulations.

• Details the types of reliefs available for residential property acquisitions.
• Explains the eligibility criteria for claiming these reliefs.
• Provides guidance on the application process for reliefs.
• Ensures adherence to HMRC tax regulations and policies.

SDLTM21030 – Reliefs: Certain Acquisitions of Residential Property

Understanding Reliefs for Property Traders

This section explains how property traders can gain relief from Stamp Duty Land Tax (SDLT) when they acquire residential properties from individuals.

What is a Property Trader?

A property trader is someone whose business includes buying and selling properties, particularly residential ones. This guidance focuses on situations where a property trader purchases a home from an individual who is also acquiring a new dwelling from a house-building company.

Exemption from Stamp Duty Land Tax

For a property trader to be exempt from paying Stamp Duty Land Tax when buying a dwelling, several conditions must be met:

– Business Activity: The purchase must be part of the property trader’s business, which includes buying homes from individuals who have purchased a new property from a house-building company.
– Previous Residence: The individual seller must have lived in the old dwelling as their main home at some point within the two years before the sale.
– New Dwelling: The individual must be acquiring a new home from a house-building company.
– Intended Use: The seller must plan to use the new property as their only or main residence.
– Area of Land: The land being purchased by the property trader must not be larger than what is permitted.

Permitted Area Conditions

If the land acquired by the property trader exceeds the permitted area, partial relief from SDLT may still be available as long as the other conditions mentioned above are fulfilled.

– Partial Relief Calculation: When claiming partial relief, the chargeable amount will be the difference between the market value of the permitted area (the old dwelling and its allowed grounds) and the total market value of the old dwelling including all the grounds.

What Can Affect Your Relief?

It is essential to understand that certain actions can lead to the withdrawal of relief under this arrangement. Specifically, relief will be withdrawn if:

– The property trader spends more than the allowed amount on refurbishing the old dwelling.
– The property trader leases or licenses the old dwelling to someone.
– Any principals or employees of the property trader, or anyone related to them, are allowed to live in the old dwelling.

You can find more about these definitions in the SDLTM21010 guidance.

Leasing Considerations

If the property trader plans to grant the original owner a rental or licensing agreement for the old dwelling, it can still be possible to claim relief under specific guidelines.

– Six-Month Rule: If the property trader intends to allow the former owner to stay in the home for no longer than six months after the acquisition, this relief is still available.

Claiming Relief

To claim the exemption detailed in FA03/SCH6A/PARA2, you need to provide the relief code 28 in the relief section of the SDLT return.

Key Points to Remember

– Property traders can potentially avoid facing Stamp Duty Land Tax when buying a home under certain conditions, which helps facilitate the acquisition of properties and support businesses in the housing market.
– The criteria for qualification includes factors around the type of transaction, prior occupancy, the acquisition of new homes, and the intended use of those new homes.
– Monitoring activities connected to the dwelling after purchase is vital since certain actions may result in losing the tax relief.

Example Scenario

To illustrate the entire process:

– Picture a property trader named Alex who purchases a house from Jamie. Jamie has lived in this house as his main residence for over a year before selling it. Jamie has also bought a new house from a building firm and plans to live there as his main home.
– Alex is running a business that involves buying residential properties from individuals like Jamie who are transitioning to new homes. This check ensures that Alex qualifies under the SDLT relief if all conditions are met.
– Alex intends to purchase Jamie’s house, which falls within the permitted size limits, so he avoids paying SDLT because he meets the necessary conditions.
– However, if Alex decides to refurbish Jamie’s house and spends more than what is allowed or allows his employees to live there, he risks losing this stamp duty relief.

Final Notes

When dealing with these transactions, property traders and sellers should be clear about the regulations and keep accurate records to ensure compliance with the guidelines set out by HMRC regarding Stamp Duty Land Tax. This clarity can help ensure smoother transactions, avoid unnecessary tax costs, and ultimately support effective property trading.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM21030 – Reliefs: Certain acquisitions of residential property

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