HMRC SDLT: SDLTM28120 – Reliefs: Alternative property finance

Reliefs for Alternative Property Finance

This article describes a specific relief from Stamp Duty Land Tax (SDLT) that relates to transactions involving the purchase of land by financial institutions. It explains the key principles and concepts surrounding these transactions and highlights the roles of the various parties involved.

Introduction to SDLT Relief

Stamp Duty Land Tax is a tax you pay when you buy property or land in England and Northern Ireland. However, there are certain situations where you can claim relief from paying this tax. One such situation arises when a financial institution purchases land and then leases it to an individual. There are two primary cases in which this relief can be claimed, and it’s important to understand how each works.

Understanding the Two Cases for SDLT Relief

The relief can be claimed based on the relationship between the financial institution and the seller of the property. Here are the two key scenarios:

Case 1: Transactions Involving a Single Financial Institution

In this situation, the relief can be claimed if the seller is the person who enters into the lease or financing arrangements with the financial institution. This case is known as the first case. Here’s what it means:

• The individual seeking finance can either obtain a loan against a property they own or work with their current financial institution to establish a new financial arrangement.

This aspect allows individuals to effectively leverage their owned properties for financial benefits. For example, if John owns a house worth £300,000 and he wants to take out a loan for £100,000, he can use the house as collateral. If his financial institution is directly involved in the arrangement, then the SDLT relief can apply to the purchase of this property.

Case 2: Transactions Involving Two Financial Institutions

The second case looks at situations where the seller is a different financial institution. Here, we refer to arrangements where one financial institution sells its interest in the property to another financial institution. The individual renting the property is not directly involved in this transaction.

• The person can change their financial institution without having to worry about SDLT being applied to the transfer.
• This also enables financial institutions to transfer property titles among themselves without the individuals having to participate in the transaction.

For instance, imagine Sarah is leasing a commercial property through Bank A. If Bank A decides to sell this asset to Bank B, Sarah doesn’t need to get involved in any SDLT calculations associated with that sale. Instead, the relief ensures that the tax is not imposed just because the title has changed hands between the two banks.

Key Considerations When Claiming SDLT Relief

Understanding the eligibility for claiming SDLT relief is vital. Here are some important considerations:

• Qualifying transactions: Not every transaction will qualify for relief. The property must be purchased by a financial institution and leased back to an individual.
• Relation to financing: The nature of financial arrangements must be clear. If the transaction structure fits the criteria laid out in SDLTM28110 guidelines, relief can be claimed.
• Importance of documentation: Maintain proper documentation for transactions as these will be required to substantiate any claims for SDLT relief.

Benefits of SDLT Relief

The SDLT relief provides several advantages:

• Cost Savings: Claiming this relief can significantly reduce the tax liability involved in purchasing property.
• Flexibility: Individuals have the flexibility to arrange their financing based on their needs without incurring additional tax burdens in certain scenarios.
• Simplification of Transactions: The ability to shift titles between financial institutions without SDLT implications simplifies processes and encourages smoother transactions.

Process for Claiming SDLT Relief

If you believe you are eligible to claim relief under the SDLT legislation regarding alternative property finance, you should follow these steps:

• Consult a professional: Consider seeking advice from a tax professional or legal expert who can guide you through the process.
• Gather relevant information: Collect all necessary documentation relating to the property, financial institutions, and the transaction itself.
• Submit your return: Once you have all the relevant documents and information, submit your SDLT return through the HMRC portal. Be sure to include a claim for relief if applicable.

Examples of Alternative Property Finance Arrangements

Understanding alternative property finance arrangements can help grasp how relief works. Here are a couple of illustrative examples:

Example One

Consider Tom, who owns a small industrial unit. He desires to obtain finance to expand his business. He approaches his current bank, Bank X, for a loan. Bank X agrees but purchases a major stake in the property to secure the loan.

Since the transaction involves Bank X providing a major interest in the property that Tom leases, he can claim SDLT relief as he is engaging in a transaction as described in the first case. Thus, no SDLT is charged on that purchase, allowing Tom to allocate more funds toward his business expansion.

Example Two

Imagine a shopping centre owned by a large financial institution, Bank Z. Now, Bank Z decides to sell this shopping centre to another institution, Bank Y, while the existing tenants remain unaffected. The transaction is treated as a title transfer between financial institutions without any direct involvement from the retail operators.

This means there are no SDLT charges on the sale because it falls under the second case, and significant savings can occur because the tax is not applied when the title transfers from one bank to another.

Important Statutory References

The SDLT relief provisions in this context are based on the specific sections of the respective legislations:

• FA03/S71A(2): This section states that relief applies where a financial institution acquires a major interest in land, provided that certain conditions are met, and it lays out the structure of the qualifying claims.
• SDLTM28110: This section outlines the arrangements and transactions that are relevant for claiming the relief under the alternative property finance scenarios.
• SDLTM28120: For further details on how reliefs apply in the case of alternative property finance, please visit SDLTM28120 – Reliefs: Alternative property finance.

Final Remarks on SDLT Relief for Financial Institutions

In summary, understanding the relief available under SDLT for transactions involving financial institutions is essential for anyone looking to engage in property finance. Both individuals and financial institutions benefit from the streamlined processes and potential for significant tax savings. By knowing the applicable cases – whether buying directly or transferring assets between institutions – stakeholders can make informed decisions to optimize their financial strategies.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM28120 – Reliefs: Alternative property finance

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