When does the Corporate Bodies 15% SDLT Rate Apply?

modern building against sky

Most people aren’t aware of the 15% which can apply to corporate property purchases over £500k and expect to pay the rates below (these are the rates with the extra 3%)

Property or lease premium or transfer valueSDLT rate
Up to £125,0003%
The next £125,000 (the portion from £125,001 to £250,000)5%
The next £675,000 (the portion from £250,001 to £925,000)8%
The next £575,000 (the portion from £925,001 to £1.5 million)13%
The remaining amount (the portion above £1.5 million)15%

Stamp Duty Land Tax (SDLT) is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies or ‘non-natural persons’. These include:

  • companies
  • partnerships including companies
  • collective investment schemes

These bodies may also need to pay Annual Tax on Enveloped Dwellings.

Relief from the 15% higher rate charge

The 15% rate does not apply to property bought by a company that is acting as a trustee of a settlement or bought by a company to be used for:

  • a property rental business
  • property developers and traders

FA03/S55/SCH4A: property rental businesses FA03/SCH4A/PARA5

Where the acquisition of a chargeable interest is exclusively for the purpose of exploitation as a source of rents or other receipts in the course of a qualifying property rental business, the 15% higher rate charge will not apply to the transaction. Instead, SDLT will be charged at the higher rates (the ones with the extra 3% in the table above) – see SDLTM09835 for more information on companies and the higher rates.

To qualify as a qualifying property rental business, the business must meet two conditions:-

  • it must be a property rental business as defined in Chapter 2 of Part 4, CTA 2009 (excluding the condition that the profits are chargeable to corporation tax – see PIM1020 onwards for more information), and
  • it must be carried on a commercial basis and with a view to a profit.

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09555

This relief may be withdrawn in certain circumstances:-

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09660

So thankfully most companies won’t have to pay 15% but this has been a source of confusion for some clients.

steve@bicknells.net

Don’t buy a holiday let in a company if you want stay in it!

interior of contemporary house on lake on cloudy day

Generally companies are great because corporation tax rates are lower than income tax rates, however, for Holiday Lets company ownership can be a problem if you have personal use for the following reasons (of course if you don’t want to stay there these don’t apply):

ATED

ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.

You’ll need to complete an ATED return if your property:

  • is a dwelling — find out the meaning of ‘dwelling’ in the next section
  • is in the UK
  • was valued at more than:
    • £2 million (for returns from 2013 to 2014 onwards)
    • £1 million (for returns from 2015 to 2016 onwards)
    • £500,000 (for returns from 2016 to 2017 onwards)
  • is owned completely or partly by a:
    • company
    • partnership where any of the partners is a company
    • ­collective investment scheme — for example a unit trust or an open ended investment vehicle

Chargeable amounts for 1 April 2022 to 31 March 2023

Property valueAnnual charge
More than £500,000 up to £1 million£3,800
More than £1 million up to £2 million£7,700
More than £2 million up to £5 million£26,050
More than £5 million up to £10 million£60,900
More than £10 million up to £20 million£122,250
More than £20 million£244,750

Benefit in Kind

Here is an example from HMRC

A UK company purchases a flat in a French ski resort for £200,000. It is agreed that a market rental for the property would be £500 per week during the 6 month skiing season and £100 per week during the rest of the year. A husband and wife who are both directors of the company use the flat for holidays with their children for 3 weeks during the ski season and one week in the rest of the year. Their children are neither employees nor directors of the company. The employer advises that the sole reason the property was bought was as a holiday home for the husband and wife. It has only been used by them as a holiday home.

We would argue in this case that provided is equivalent to available for use. Assuming that the flat was habitable for the whole of the year we would seek a benefit under Part 3 Chapter 5 measured on availability for the whole of the year. The employer may argue that the husband and wife work full time and that this prevents them using the flat for more than the 4 weeks in the year of actual use and so they are effectively only provided with it for 4 weeks. We do not accept that argument.

If the cost of the accommodation exceeds £75,000, then the amount of the cash equivalent would be calculated in accordance with Section 106 ITEPA 2003 (see EIM11472). As the annual value is based on the open market rental, under ESC A91 the cash equivalent of the benefit is restricted to step 1 of Section 106. This would mean that the cash equivalent for the tax year would be £15,600 (£500 x 26 + £100 x 26). Under Section 108 that would be split between the husband and wife in whatever way was just and reasonable, presumably half each in this case (see EIM11472).

The amount of the benefit under section 106 is:

•Step 1 – the cash equivalent as if section 105 ITEPA 2003 applied (see EIM11431)

•Step 2 – ORI × (C – £75,000) (this amount is called the additional yearly rent), where:

•C is the cost of providing the living accommodation (see point three above) and

•ORI is the official rate of interest

•Step 3 – calculate the rent that would have been payable if the property had been let for the taxable period at that additional yearly rent (see EIM11428 for taxable period)

•Step 4 – add together the amounts calculated under step 1 and step 3. From this total subtract any excess rent paid by the employee. The answer is the amount of the benefit.

FLM Indicator have a calculator to work this out if you need it.

What would be the tax if its personally owned?

If the property is owned personally then a SA105 Box 10 Private Use Adjustment is made, this excludes a % of the property costs for the period of private use. If you only stay there for a short period its going to be a much lower cost.

steve@bicknells.net