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HMRC SDLT: Understanding SDLT: Deemed Market Value in Property Transfer to Connected Company

HMRC Guidance on SDLT: Understanding Deemed Market Value in Transactions

This article discusses the application of deemed market value in transactions, particularly focusing on the transfer of property between connected parties. We will clarify key ideas and provide examples to illustrate how these concepts apply.

Key Concepts in Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax (SDLT) is a tax that needs to be paid when buying property or land in the UK. When settling the SDLT amount, it’s important to determine the correct ‘chargeable consideration.’ This is typically the amount paid but can differ depending on whether the buyer and seller are connected parties.

Connected Parties

One important factor in determining SDLT is whether the buyer and seller are considered ‘connected.’ Connections often arise in business situations, family relationships, or when one party has direct control over the other. The legal definition of ‘connected’ is detailed in the S1122 CTA 2010 legislation.

For instance:

• If an individual is transferring property to a company they control, they are considered connected.
• If two individuals are family members, they may also be regarded as connected for SDLT purposes.

Market Value Considerations

The market value refers to the price a property would likely sell for in an open market. It’s essential to establish this value when dealing with transactions between connected parties.

For SDLT calculations, the market value can influence the chargeable consideration if the parties involved are connected. It’s important to determine this value accurately for compliance with tax obligations.

Example of SDLT Calculation

Let’s break down a scenario to understand how these principles work in practice.

Example 1: Property Transfer between Individuals and Companies

Consider individual A who transfers freehold residential property to company B for a payment of £170,000. We can examine this situation based on whether A is connected to B:

Step 1: Assess Connection

Is A connected to B according to S1122 CTA 2010?

• If A is not connected to B, the chargeable consideration would be the amount paid, which is £170,000.

Step 2: Determine Market Value

If A is connected to B, another step must be taken. According to S53, the chargeable consideration may instead be the market value of the property at the date of the transfer.

Market Value Scenarios

Let’s say the market value of the property on the effective date of the transaction is assessed as follows:

• If the market value is £275,000: The chargeable amount would then be £275,000, and SDLT would be calculated based on this figure.
• If the market value is only £150,000: In this case, since A is connected to B and the actual payment was £170,000, the chargeable consideration would be taken as £170,000, which would be taxed accordingly.

Importance of Correct Assessment

It is vital to accurately determine whether the parties are connected and to assess the correct market value. An incorrect assessment can lead to complications, such as underpayment or overpayment of SDLT. Proper documentation and valuations will help ensure compliance during these transactions.

Conclusion Points

This article has outlined the essentials of SDLT regarding deemed market value, particularly in scenarios involving connected parties. Reviewing and understanding the implications of such connections can help both individuals and businesses navigate the complexities of property transactions.