HMRC SDLT: SDLTM28210 – Reliefs: Alternative property finance

Reliefs: Alternative Property Finance

This section of the HMRC internal manual provides guidance on reliefs related to alternative property finance. It outlines the principles and concepts involved in tax relief for alternative property finance arrangements.

• Explains the eligibility criteria for tax relief on alternative property finance.
• Details the types of financial arrangements that qualify for relief.
• Provides examples of scenarios where relief can be applied.
• Clarifies the documentation required to support claims for relief.

Reliefs: Alternative Property Finance

This guide explains the reliefs available for alternative property finance under the Stamp Duty Land Tax (SDLT) scheme. These reliefs apply when purchasing land or property using specific financial arrangements. Understanding how these reliefs work can save you a significant amount on SDLT.

What is Alternative Property Finance?

Alternative property finance refers to specific financial arrangements used when buying properties. This includes setups that may not be typical conventional mortgages or loans. Some common forms of alternative property finance include:

• Islamic finance
• Equity release schemes
• Shared ownership schemes

These arrangements can allow buyers to obtain property using different methods of financing, potentially offering benefits over traditional methods.

Key Principles of SDLT Reliefs for Alternative Property Finance

The SDLT reliefs for alternative property finance are aimed at ensuring fair treatment under the tax system for those who use these alternative methods. There are a few important principles to keep in mind:

• The relief is designed to provide equitable treatment for buyers using alternative finance.
• This relief applies only to specific financial structures that meet certain criteria.
• It’s essential to understand whether the property purchase falls under these relief regulations. If it does, there may be reduced or zero SDLT payable.

Types of Relief Available

Reliefs under SDLT for alternative property finance can vary based on the scheme used. Here are some types of reliefs available:

Islamic Finance Relief

Islamic finance involves financial products compliant with Islamic law (Shari’ah). One key feature is that the financial arrangement must not involve interest (Riba). When buying a property through an Islamic finance structure, specific reliefs can be claimed. For example:

• If a property is purchased using a Shari’ah-compliant mortgage, special SDLT relief may apply.
• There may be a cap on SDLT rates applicable to the purchase price.

Shared Ownership Relief

Shared ownership schemes allow buyers to purchase a portion of a property, usually through a housing association. This form of ownership can significantly lower initial costs. The relief available under SDLT includes:

• A reduction in the amount of SDLT payable based on the share that is being purchased.
• Buyers may only need to pay tax on the initial share purchased and not on the entire property value initially.

Equity Release Schemes

Equity release schemes permit homeowners to access the money tied up in their property without needing to sell it. This is often done through products like lifetime mortgages. The SDLT relief can be structured as:

• Lower SDLT rates or complete relief when releasing equity for investments in new properties.
• This can be especially beneficial for older homeowners looking to downsize or move into suitable accommodation.

How to Claim SDLT Reliefs for Alternative Property Finance

Claiming these reliefs is essential for reducing the amount of SDLT payable. Follow these general steps to apply:

Step 1: Check Eligibility

Before claiming any relief, ensure your financial arrangement meets the criteria set out by HMRC. This includes verifying that:

• The property is purchased using one of the valid alternative financing methods as outlined above.
• You have all required documentation to support your relief claim.

Step 2: Complete the SDLT Return

You’ll need to submit an SDLT return to HMRC. This return should include:

• The property’s purchase price.
• Details of the financing method used.
• Any applicable reliefs you are claiming.

Make sure to file your return within 14 days of the property transaction to avoid penalties.

Step 3: Provide Supporting Documentation

As part of your claim, you may need to provide additional evidence, such as:

• Financial documents showing your financial arrangement is compliant with Shari’ah or other alternative finance rules.
• Contracts or agreements related to shared ownership or equity release schemes.

Step 4: Await HMRC Confirmation

Once your return and related documents are submitted, HMRC will process your claim. They will inform you of their decision, including the accepted reliefs, within a set timeframe. Any adjustments made must be noted, and you may need to pay additional fees if your initial return was incorrect.

Examples of Relief Application

To further clarify how to apply for reliefs under alternative property finance, here are some practical examples:

Example 1: Purchasing a Property through Islamic Finance

Let’s say you decide to purchase a house for £300,000 using a Shari’ah-compliant mortgage. By demonstrating that the transaction aligns with the Islamic finance principles, you could qualify for SDLT relief, which reduces the tax burden significantly on that total.

Example 2: Shared Ownership Purchase

If you buy a 50% share of a property priced at £200,000 through a shared ownership scheme, the SDLT would only apply to the share you are acquiring. This means you would calculate SDLT on £100,000 instead of the full property price, which translates to considerable savings.

Example 3: Equity Release with a New Property Investment

Imagine you own a home valued at £500,000 and you decide to release some capital to invest in a buy-to-let property. If you follow the correct procedures for equity release and your finances are set up appropriately, you could receive SDLT relief on the new purchase, reducing your overall tax liabilities when you invest.

Important Considerations

While these reliefs can provide significant benefits, it’s vital to consider a few points:

• Understand the regulations: Misunderstanding the eligibility criteria can result in missed opportunities for relief.
• Consult specialists when needed: If you’re unsure or dealing with complex structures, it may be wise to seek advice from tax or legal professionals.
• Keep detailed records: Maintain proper documentation of your financial transactions. This will bolster your claims and help you address any queries from HMRC.

Resources and Further Information

For more detailed information on specific aspects of these reliefs, and to find the relevant SDLT legislation, check the official HMRC guidelines or consult a tax professional. Additionally, you can view more details on specific reliefs here: SDLTM28210 – Reliefs: Alternative Property Finance.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM28210 – Reliefs: Alternative property finance

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