When a property trader buys a residential property from an estate, they can claim relief from Stamp Duty Land Tax (SDLT). Here’s a simplified overview of the key conditions and considerations.
Claiming SDLT Relief
To qualify for SDLT relief, a property trader must meet specific conditions and claim it on the land-transaction return
Who Qualifies as a Property Trader?
A property trader can be:
- A Company
- A limited liability partnership
- An ordinary partnership where the partners are companies or limited liability partnerships
These entities can also engage in other businesses.
Conditions for SDLT Relief
- Business Activity: The purchase must be part of a business that includes acquiring dwellings from the personal representatives of deceased individuals.
- Previous Occupancy: The deceased must have lived in the dwelling as their main residence within two years before their death.
Restrictions on Use: The property trader must not:
- Spend more than the permitted amount on refurbishment.
- Lease or license the dwelling.
- Allow principals, employees, or connected persons to occupy the dwelling.
Land Area: The property should not exceed 0.5 hectares unless more land is needed for reasonable enjoyment of the house.
Renting the Property
If the property trader decides to rent out the property, this will breach the relief conditions and the relief will be withdrawn. The tax then becomes the amount that would have been due without the relief.
Transferring to a Subsidiary
Transferring the property to a subsidiary company might seem like a way to maintain the relief. However, this can be complex:
- Group Relief: Normally, transfers within a group are exempt from SDLT.
- Anti-Avoidance Rules: If the transfer is seen as a way to avoid tax, group relief could be denied, and the initial relief might be withdrawn.
Understanding SDLT relief and its conditions is important for property traders. Renting out a property that initially qualified for relief can negate that relief, leading to tax implications. Transfers within group structures also need careful handling to avoid falling foul of anti-avoidance rules.
If you need any help or advice on SDLT relief and property transactions please get in contact, we are here to help.
Linked is further information about the topic – SDLTM21040 – Reliefs: Certain acquisitions of residential property – HMRC internal manual – GOV.UK (www.gov.uk)
