Guidance

Stamp taxes newsletter: August 2021

Updated 24 February 2023

Permanent changes to Stamp Duty on shares processes

The April 2020 Stamp Taxes Newsletter gave details on changes that had been made to Stamp Duty processes in March 2020 owing to the impact of coronavirus (COVID-19).

The main features of the new system are:

• transfer instruments (including form SH03 to record the purchase of own shares) are submitted to HMRC electronically
• in place of a physical stamp on the transfer instrument, HMRC issues a letter confirming that duty has been paid or a claim for relief has been adjudicated

Instruments processed under this system are duly stamped for all purposes.

These processes have now been adopted permanently by HMRC and on 18 June 2021 HMRC announced that the previous physical stamping system would be withdrawn. This took effect on 19 July 2021 and from then the method introduced in 2020 is the only valid method of stamping.

The main guidance on the Stamp Duty processes has been updated, and 2 new pages have been added to the Stamp Taxes on Shares Manual:

• STSM011015 – New method of stamping
• STSM011015A – Withdrawal of physical stamping

Further updates to the Stamp Taxes on Shares Manual will be made in due course to reflect the withdrawal of physical stamping.

Stamp Duty group relief – guidance updates

On 16 July 2021 the guidance on Stamp Duty group relief was updated, including to reflect the permanent adoption of the 2020 processes.

In addition, updates were made to some guidance pages on group relief in the Stamp Taxes on Shares Manual in July 2021. This guidance is found between pages STSM042200 and STSM042330.

Modernisation of the Stamp Taxes on Shares Framework

A Call for Evidence on the ‘Modernisation of the Stamp Taxes on Shares Framework’ was published in July 2020. The Call for Evidence gathered views from interested stakeholders on what the principles and design for a new Stamp Duty and Stamp Duty Reserve Tax (SDRT) framework should be, and what changes within a modernisation programme should be prioritised.

HMRC held the Call for Evidence from 21 July to 13 October 2020, including meetings with stakeholders. It opened a conversation as the first step in a longer-term modernisation project with potentially several stages of consultation and new legislation.

A Summary of Responses was published in July 2021, which summarises the responses to the Call for Evidence and sets out the government’s response and next steps. In light of the responses, the government will explore the feasibility and implications associated with the key priority areas identified by respondents, including by setting up a Working Group to work collaboratively with stakeholders.

Asset Holding Companies

The Government has published a Summary of Responses following the second-stage consultation on potential reforms to the tax treatment of asset holding companies in alternative fund structures. The document includes discussion of the Stamp Duty and SDRT responses and next steps.

Schedule 36 Finance Act 2008 – taxpayer information notices

Finance Act 2021 amended Schedule 36 Finance Act 2008 by extending the conditions under which a taxpayer information notice may be given for the purposes of Stamp Duty Land Tax (SDLT).

Prior to the change made in Finance Act 2021, such a notice could be given only where:

• Condition A - there is an open enquiry into the return
• Condition B - HMRC has reason to suspect that:
  • a) an amount that ought to have been assessed to SDLT in respect of the transaction may not have been assessed; or
  • b) an assessment to SDLT in respect of the transaction may be or has become insufficient; or relief from SDLT in respect of the transaction may be or have become excessive
• Condition C – the notice is given for the purposes of obtaining any information or document that is also required for the purposes of checking that person’s position as regards tax other than SDLT

A feature of the SDLT regime is that various reliefs can be claimed at the point of transaction based on the purchaser’s intention to use the land/buildings for one or more specified purposes, generally within a post-transaction ‘control period’ of 3 years from the effective date of transaction. If the purchaser fails to satisfy the relief requirements during or throughout the ‘control period’ they must deliver a further return and pay the SDLT that is then due.

HMRC needs to be able to check entitlement to such ‘up-front’ relief beyond the 9-month SDLT enquiry window, which expires before the end of the 3-year control period. New Condition D was added into paragraph 21A, Schedule 36 Finance Act 2008 by Finance Act 2021 allowing HMRC to give a taxpayer notice for the purposes of checking whether:

• the relief must be withdrawn, to any extent, under a provision mentioned in Section 81 (further return where relief withdrawn), or section 81ZA Finance Act2003 (alternative finance arrangements: return where relief withdrawn), or
• Paragraph 6 of Schedule 6B Finance Act 2003 (transfers involving multiple dwellings) applies

Sections 81 and 81ZA are amended by Finance Act 2021 to take into account the introduction of SDLT Freeport reliefs which is also withdrawable where the relief conditions are no longer met in the post-transaction 3 year ‘control period’ (see Schedule 17 of Finance Act 2021, relief from the 15% higher rate of SDLT for certain housing co-operatives, which contains a number of consequential changes to sections 81 and 81ZA).

Guidance on the freeports relief has been published on GOV.UK. Purchasers are reminded that relief will not be available for acquisitions made before Freeport Tax Sites are formally designated by ministers. There will be a further announcement on gov.uk when designation occurs.

In addition to these limitations, generally a taxpayer notice in reliance on new Condition D may not be given later than 4 years after the effective date of transaction (effectively no later than 12 months after the end of the typical 3-year control period). The exception to this general rule concerns ‘seeding relief’ where the 4-year time limit begins on the first day of the control period. This takes account the ‘seeding period’ during which relief can be claimed and which can last up to 18 months before the start of the control period.

Whilst Condition D came into effect on 10 June 2021, notices in reliance upon it may be given in relation to transactions which took place before that date provided the notice is given within the 4-year time limit.

Under existing legislation HMRC can make a Determination to ‘the best of their knowledge and belief’ of tax chargeable where it considers relief has become excessive. Ordinarily such a Determination can be superseded only by the submission of a further return. To take account of HMRC making a Determination following an unsatisfactory response to an information notice given in reliance on new Condition D, Finance Act 2021 amends section 81 and 81ZA allowing the purchaser to appeal such a Determination on the basis that relief remains due and there is no requirement to deliver a further return (see new sections 81(3)(f) and 81ZA(2)(f)) of Finance Act 2003 at Schedule 17 of Finance Act 2021).

SDLT temporary rates

On 1 July 2021, the nil rate band for residential purchases in England and Northern Ireland changed to £250,000 and it will be that amount until 30 September 2021.

The nil rate band was temporarily increased to £500,000 between 8 July 2020 and 30 June 2021, and the change in the nil rate band to £250,000 between 1 July and 30 September 2021 is part of a phased approach to returning the nil rate band to the standard amount of £125,000.

From 1 October 2021, the nil rate band will return to £125,000.

First Time Buyers’ Relief, which had no effect while the nil rate band was £500,000, has resumed with effect from 1 July 2021. First time buyers are eligible for reduced rates of SDLT if the property they purchase costs up to £500,000. They pay no SDLT on the first £300,000 and SDLT at 5% on any amount between £300,001 and £500,000.

The SDLT online calculator is up to date and its calculations reflect these changes to the nil rate band.

Recent SDLT tribunal decisions

There have been several recent tribunal decisions concerning Stamp Duty Land Tax (SDLT), including two Upper Tier Tribunal decisions.

The case of HMRC and Christian Peter Candy concerned the 12-month time limit for amending a return while the case of HMRC and Fiander & Brower considered a claim for Multiple Dwellings Relief (MDR).

HMRC and Christian Peter Candy

The Upper Tribunal decision in the case of HMRC and Christian Peter Candy was released on 8 July 2021.

The Upper Tribunal has agreed with HMRC’s view and held that the First-tier Tribunal had been wrong in their findings that the 12-month time limit for amending an SDLT return (paragraph 6(3), Schedule 10 FA2003) did not apply where a repayment of SDLT was claimed after a contract, which had been substantially performed, was annulled, rescinded or not carried into effect (s44(9) FA2003).

The Upper Tribunal also rejected the argument that there was any double taxation in this case and the SDLT outcome, with regard to the particular facts of this case, was reasonable.

The decision confirms that where SDLT has been paid on the substantial performance of a contract but, before completion, that contract is annulled, rescinded or otherwise not carried into effect, the purchaser is only able to amend their SDLT return and claim a repayment under the usual 12-month time limit.

Multiple Dwellings Relief – HMRC and Fiander & Brower

This was the first time that an MDR case focusing on ‘suitability for use’ had been considered by the Upper Tribunal.

In this case, the Upper Tribunal dismissed the appeal, agreeing with the approach taken by the First Tier Tribunal.

When considering ‘suitability for use’ as a dwelling for MDR purposes, it is necessary to consider what an objective observer’s perspective would have been at the effective date of the transaction.

The approach to be taken when considering suitability for use was confirmed as:

• suitable means appropriate for use as a single dwelling at the effective date of the transaction
• the dwelling must be suitable for residential accommodation, providing facilities for basic domestic living needs (including the need to sleep, and to attend to personal hygiene)
• the dwelling must be a separate, self-contained unit
• the dwelling must be suitable for use as such generally, and not in limited or only specific circumstances
• the test is not ‘one size fits all’ and how a person’s basic living needs can be accommodated will vary depending on the circumstances
• it is an objective test, and the motive or intentions of the purchasers are not relevant
• all of the facts and circumstances must be considered in a multi-factorial assessment

This case also confirms that when considering suitability for use as a dwelling for MDR purposes, decided cases involving taxes or contexts other than SDLT cannot be relied upon.

The full decision is available.

Multiple Dwellings Relief - further First Tier Tribunal decisions

Several recent First Tier decisions have considered claims for MDR relating to annexes, which have all broadly followed the approach taken in Fiander & Brower.

They have considered a wide range of differing circumstances, but all the tribunal decisions to date have confirmed HMRC’s position that when taking a balanced view of all the facts, the following are important considerations:

• the dwelling should be physically configured to provide independent access, security and privacy
• the dwelling should include basic living facilities, including a sleeping area, living area, a bathroom and a kitchen
• each dwelling should have control of their own utilities

Recent SDLT Tribunal decisions can be viewed at the Courts & Tribunals Judiciary website.

For guidance on substantial performance, please see SDLTM07550 onwards.

For guidance relating to MDR, please see SDLTM00410 onwards.