HMRC SDLT: SDLTM31810 – Application – Transactions involving Pension Funds -Borrowing and Mortgages

Principles and Concepts of SDLTM31810

This section of the HMRC internal manual focuses on the application of SDLTM31810, specifically addressing transactions involving pension funds, borrowing, and mortgages. It outlines key principles and concepts related to these financial transactions.

• Explains the rules governing transactions with pension funds.
• Details the implications of borrowing against pension funds.
• Describes the regulations surrounding mortgages involving pension funds.
• Provides guidance on compliance with HMRC standards.

Pension Fund Borrowing and Mortgages: Understanding SDLT Implications

When a pension fund borrows money, it can provide a mortgage or charge on land as security for that borrowing. To understand how this works under Stamp Duty Land Tax (SDLT), it’s important to look at borrowing and mortgages separately.

Borrowing by Pension Funds

If a pension fund (or the fund’s trustees) assumes an existing loan or debt from a previous owner (transferor), or if they help to clear that debt as part of acquiring the property, then this situation is treated differently for SDLT purposes. Here’s how it breaks down:

• If the pension fund takes on a loan that the transferring fund was previously responsible for paying back, this does not automatically create a taxable event.
• Similarly, if the pension fund engages in any action that releases the transferor from that debt as part of the property transfer, it will not count as chargeable consideration for SDLT.

This means that while transferring property and taking on debts, no extra charge will apply to SDLT provided these conditions are met.

Mortgages and SDLT

Mortgages are a common way for pension funds to make borrowing secure. A mortgage or any similar legal charge is considered a security interest. The dealings with these mortgages, including setting them up or releasing them, usually fall under specific exemptions regarding SDLT.

• Because mortgages act as security for the debt, transactions involving the creation or release of such charges are exempt from SDLT.
• This exemption means that these transactions won’t count towards any SDLT obligations.

Notification Requirements for SDLT

According to the Finance Act 2003, a land transaction that involves no consideration does not need to be reported for SDLT. This means that notification is only necessary if the transaction includes chargeable consideration that exceeds £40,000.

To clarify further, if a pension fund transaction involves property with a value lower than £40,000 or no value at all, it doesn’t need to be formally reported.

Examples of Pension Fund Transactions

For better understanding, it is helpful to consider some specific examples of how these concepts play out in real situations. You can refer to the following examples from the HMRC guidance:

• Transactions involving pension funds: Example SDLTM31811
• Transactions involving pension funds: Example SDLTM31812

In these examples, you will see how the principles of borrowing and mortgage exceptions apply in different scenarios, highlighting the SDLT implications and specific details of each case.

Final Note

It’s important for pensions funds and their trustees to fully understand these rules. By ensuring that they comply with SDLT regulations when engaging in borrowing and related transactions, they can take advantage of existing exemptions and avoid unnecessary charges.

Understanding the separation of borrowing and mortgages under SDLT can significantly impact the financial decisions made by pension funds. Knowing what qualifies as chargeable consideration will help ensure compliance and maintain proper legal standing in property transactions.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM31810 – Application – Transactions involving Pension Funds -Borrowing and Mortgages

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