Read the original guidance here:
HMRC SDLT: Pension Fund Property Purchases: Linked Transactions and Stamp Duty Land Tax Guidance

SDLT31820 – Application – Pension Funds and Linked Transactions

Introduction to SDLT and Pension Funds

When pension funds buy properties, they must follow specific tax rules set out in section 108 of the Finance Act 2003. One important aspect to consider is whether multiple purchases are linked. This can affect how Stamp Duty Land Tax (SDLT) is calculated.

Understanding Linked Transactions

If a pension fund buys more than one property at the same time, the transactions are linked if certain conditions apply. Here’s a clearer breakdown:

– Single Scheme or Arrangement: If the purchases are part of a single plan or deal.
– Series of Transactions: If the properties are bought as part of a series of transactions between the same buyer and seller or involve people connected to them.

When the transactions are deemed linked, the SDLT is based on the total value of all the properties purchased, not just each property individually.

Example of Linked Transactions

Let’s consider an example for better understanding:

– Scenario: Fund A agrees to buy three parcels of land from individual B.
– Price per Parcel: Each of the three parcels costs £150,000.

In this case, the total amount for all three parcels would be:

– Parcel 1: £150,000
– Parcel 2: £150,000
– Parcel 3: £150,000
– Total Consideration: £150,000 + £150,000 + £150,000 = £450,000

Since the transactions are linked, SDLT applies to the total consideration. Therefore, SDLT must be calculated based on the full value of £450,000, rather than £150,000 for each property.

Filing SDLT Returns

Once the purchase is made, the next step is to file the SDLT return, known as SDLT1. You have two options for submitting the return:

1. Single Return: One SDLT1 form can be lodged for all three properties. This form needs to indicate that the transactions are linked and state the total consideration amount of £450,000.
2. Separate Returns: You could also file three separate SDLT1 forms, one for each parcel. Each form must indicate that transactions are linked and include the total consideration amount.

Why It Matters

Understanding whether transactions are linked is essential for pension funds. It not only determines how much SDLT needs to be paid but also ensures compliance with tax legislation. Failing to correctly identify linked transactions can lead to penalties or the need to pay additional tax.

Key Points for Pension Funds to Consider

Here are some important points pension funds should keep in mind regarding linked property transactions:

– Identify Linkage Early: Always assess at the beginning whether multiple property purchases might be linked to avoid complications later on.
– Assess Connection Between Parties: Check if the buyer and seller are the same for several transactions or if related individuals are involved, as this could indicate linkage.
– Calculate SDLT Based on Total Consideration: If transactions are linked, calculate SDLT using the sum of all purchase prices, not just individual property values.
– Properly Complete SDLT1 Forms: Ensure that your SDLT1 forms correctly reflect whether transactions are linked and provide an accurate total consideration.

Common Questions regarding SDLT and Pension Funds

Here are some frequently asked questions about linked transactions related to pension funds:

1. What happens if we fail to file a linked SDLT return?
– If a pension fund does not file a return correctly, it may incur penalties and interest charges. It’s essential to get it right.

2. Can we split transactions to avoid linkage?
– Splitting transactions may be seen as an attempt to avoid tax. If the realities of the transactions indicate they are linked, the tax authority will regard them as such regardless of how they are presented.

3. How can we determine if we are connected to another party involved in the transaction?
– Persons are considered connected if they are family members or have significant business relationships. Legal advice may be beneficial in complex situations.

4. Is there a time limit to file an SDLT return after purchasing a property?
– Yes, SDLT returns must be submitted within 14 days of the purchase completion. Late submissions may lead to penalties.

Conclusion and Additional Resources

For additional guidance on SDLT and linked transactions, pension funds can access government resources or seek advice from tax professionals. This ensures compliance and helps avoid potential issues related to property purchases.