Guidance

Stamp taxes newsletter: January 2021

Updated 24 February 2023

EU Exit

The UK’s exit from the EU took place on 31 January 2020. Article 126 of the Withdrawal Agreement provided for a ‘transition period’ which ended on 31 December 2020.

Prior to the end of the transition period, any necessary changes were made to stamps taxes legislation to keep stamp taxes working in the same way following the end of the transition period as it did before. In particular, reliefs and exemptions such as the Stamp Duty and Stamp Duty Reserve Tax (SDRT) intermediary and stock lending reliefs continue to apply as before.

The SDRT 1.5% charge on issues (or transfers integral to capital raising) remains disapplied under the terms of the European Union (Withdrawal) Act 2018 following the end of the transition period. This will remain the position unless stamp taxes on shares legislation is amended. This is because the direct effect of the relevant provisions of the EU Capital Duties Directive was confirmed by the First-tier Tribunal in the HSBC and Bank of New York Mellon case before Exit Day. Relevant HMRC guidance on the 1.5% charge has been updated.

Additional 2% Stamp Duty Land Tax charge for non-UK residents

In our October newsletter, we advised that new SDLT rates for non-UK resident purchasers of residential property come into effect for transactions taking place in England and Northern Ireland on or after 1 April 2021. We would like to remind solicitors and land conveyancers that the rates will be 2% higher than other residential rates – including those for first time buyers and purchasers of additional dwellings – with liability to the rates based on new SDLT residence tests (note that the Statutory Residence Test will not apply for SDLT purposes). Broadly the tests applying are as follows:

• transactions will be liable to the new rates if any of the purchasers is non-UK resident
• individual purchasers will be non-UK resident if they are not present in the UK on at least 183 days during the 12 months prior to their purchase
• corporate purchasers will be non-UK resident if they are not UK resident for Corporation Tax purposes at the date of purchase, special rules will apply however for UK resident companies which are under the direct or indirect control of non-UK resident persons
• trusts will be non-UK resident if any trustee is non-UK resident under the SDLT residence tests except where the trust is a bare trust or where any beneficiary is entitled to a life interest in, or income arising from the purchased property
• partners acting together to purchase a property will be treated as joint purchasers

Individual purchasers may be able to claim a refund of the surcharge if they meet residency requirements within a 12 month period after the effective date of transaction. Crown employees and their spouse or civil partner will be able to claim an up-front relief from the surcharge.

To facilitate these new rates, the SDLT paper return and online portal will be updated to include new questions relating to:

• the purchaser’s residence status
• whether companies are under the control of non-resident persons
• whether the purchaser wishes to claim crown employment relief

The updated paper return will be available to order soon and will be mandatory for all transactions with an effective date of 1 April 2021 or later. For transactions which take place before 1 April 2021, the current paper return will be mandatory until 31 March 2021 and will accepted until 30 April 2021, after which all transactions must use the updated return.

Introducing the 2% surcharge remains subject to Parliamentary approval and we will advise if there are any changes before the new rule commences. More information will be provided ahead of April. Read the current information relating to SDLT.

Removal of Question 64 from the SDLT 1 form – agent’s DX number and exchange

With the introduction of the new SDLT return for transactions with an effective date on or after 1 April 2021, we have taken the decision to phase out the use of Document Exchange (DX). For transactions using the updated return, a postal address will now be required.

Stamp Duty Land Tax

On 10 October 2020, a decision was released regarding the High Rates for Additional Dwellings and Dwellings purchased by Companies (“HRAD”), you can read the decision regarding HRAD. The case concerned the purchase of two flats which the purchaser intended to knock together into a single main residence, and in respect of which HRAD was reclaimed once the main residence was sold. The tribunal agreed with HMRC that the replacement main residence condition was not met by either flat singly, or jointly, so a refund was not due. General guidance on HRAD has been updated recently to provide further clarity (November 2020). You can read the general guidance on HRAD.

On 12 October 2020, the decision for Waterside Escapes Ltd v HMRC was released, which can be found here. In this case, SDLT relief was claimed by a company on the purchase of a high-value residential property (Schedule 4A of the Finance Act 2003). The Tribunal determined that the relief should be clawed back due to a non-qualifying individual being permitted to occupy the property. The decision also provided helpful considerations on the meaning of “occupation” for the purposes of clawing back this relief, as well as looking at who controls a company and the SDLT partnership rules.

Annual Tax on Enveloped Dwellings

ATED daily late filing penalties – recent tribunal decisions

The recent cases of Advantage Business Finance Ltd v HMRC [2019] and Heacham Holidays Ltd v HMRC [2020] both concerned the charging of daily late filing penalties under Schedule 55 Finance Act 2009, in particular whether HMRC had given the requisite notice to be able to charge such penalties.

In both cases the First-tier Tribunal concluded that notice of daily penalties must be given prospectively (for example, prior to the period during which the daily penalties are incurred). As the notices given by HMRC were retrospective in timing, the legislative requirements had not been met and the tribunal therefore cancelled the daily penalties.

Although HMRC has not appealed the decisions of the First-tier Tribunal in Advantage Business Finance Ltd and Heacham Holidays Ltd, HMRC does not agree with the conclusions reached by the tribunal. There is no statutory requirement for the notice to be prospective in timing and the legislation expressly provides that the date from which the penalty is payable can be given retrospectively.

ATED

On 29 October 2020, the Upper Tribunal decision for Hopscotch Ltd v HMRC was released. The decision can be found here.

This case concerned a claim for property developers relief. Hopscotch Ltd owned a single property and carried out works to redevelop the property in order to then sell it. The company contended that the actions taken to redevelop the property amounted to the carrying on of a property development trade, as such property developers relief could be claimed.

The First-tier Tribunal decided that the company was not carrying on a property development trade. The Upper Tribunal concluded that there had been no error in law and upheld the First-tier Tribunal’s decision that a property development trade was not being carried on, as a result property developers relief was not available.

Teams meetings

You might wish to note that following recent changes in HMRC, you will now be able to take part in meetings with HMRC staff on Teams without the need to request access permission individually. Just select the “Teams” link on the event invitation.