Linked Transactions

(Overview: Process of Reclaiming SDLT>Reclaims for Stamp Duty in Various Situations)

Summary: Reclaims may arise from misclassifications in linking transactions.

Reason for Reclaim

A stamp duty reclaim can arise from two scenarios involving linked transactions. First, if a transaction was incorrectly classified as linked, leading to an improper calculation of stamp duty, a reclaim may be justified. Conversely, if a transaction that should have been considered as linked was not, thus resulting in a higher stamp duty liability, this too could validate a reclaim. In both cases, correcting the transaction classification could significantly reduce the stamp duty owed.

Examples of Incorrectly Linked Transactions

Incorrectly linked transactions can have significant consequences for Stamp Duty Land Tax (SDLT) liabilities. When transactions are mistakenly considered linked, it can lead to an inflated SDLT due to the cumulative value of the properties being taxed at a higher rate.

Example: Independent Residential Purchases by a Single Buyer

Scenario: An individual decides to purchase two residential properties simultaneously: one as a primary residence and another as a holiday home. Although these are separate investments intended for different uses, their simultaneous purchase might lead them to be considered linked transactions.

Incorrect Linking Issue: If these transactions are incorrectly linked, the total value of both properties would be aggregated, potentially pushing the buyer into a higher SDLT bracket for the entire sum, rather than calculating SDLT individually for each property at potentially lower rates.

The abolishment of multiple dwellings relief has heightened the consequences of mislinking property transactions. Previously, this relief reduced SDLT for buyers of multiple properties, but its removal now increases the risk of higher tax liabilities if transactions are incorrectly linked.

Example: Multiple Investments by Separate Entities

Scenario: A businessperson who owns several companies decides to purchase properties through different corporate entities where each entity acts independently.

Incorrect Linking Issue: Sometimes, these purchases may be linked because they involve a common controlling interest. If treated as linked, the SDLT could be calculated on the cumulative value of the purchases made by the different companies, disregarding the separation of legal entities and their independent operations.

Example: Successive Property Acquisitions

Scenario: A property developer purchases several plots of land or properties in succession over a period to manage cash flow effectively, with no initial intent to develop them as a single project.

Incorrect Linking Issue: These transactions could be mistakenly linked as part of a single scheme or development project, especially if they occur in close geographical proximity or within a short time frame. This misinterpretation could lead to a higher SDLT due to the cumulative pricing, despite the separate nature of each deal.

Example: Family Members Buying Properties

Scenario: Family members independently purchase properties around the same time, and these properties are not intended to be used collectively.

Incorrect Linking Issue: Due to their familial relationships, their transactions might be seen as connected, potentially treating the purchases as linked transactions. This can unnecessarily increase SDLT liabilities if the cumulative value of the properties is considered rather than each transaction being assessed on its own merits.

Example: Business Restructuring

Scenario: A company undergoes restructuring, resulting in the transfer of properties between different parts of the business or to a new entity created to better manage certain assets.

Incorrect Linking Issue: Such transfers, although administratively linked, may be considered for SDLT as linked transactions if not correctly structured and justified, leading to unnecessary SDLT liabilities on transfers that might normally qualify for relief under intra-group transfer rules.

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Where linked transactions can result in reduced Stamp Duty liability.

(Overview: Process of Reclaiming SDLT>Reclaims for Stamp Duty in Various Situations)

➤ Buying non-residential and residential properties together as linked transactions can significantly reduce Stamp Duty Land Tax (SDLT) liability.

Stamp Duty liability can be reduced under certain circumstances, particularly when residential and non-residential properties are purchased together in a single transaction. In such cases, the entire transaction may be classified as non-residential for Stamp Duty purposes.

Example: Linked Transaction with Non-Residential Property

To calculate the Stamp Duty Land Tax (SDLT) for two separate property purchases—one residential and one non-residential—and compare it with the SDLT liability if both properties were purchased in a linked transaction and subjected to non-residential rates, we’ll use the rates and bands you provided.

Separate Property Purchases

  1. Residential Property Purchase for £1,750,000
    • Total SDLT for Residential Property: £173,750
  2. Non-Residential Property Purchase for £250,000
    • Total SDLT for Non-Residential Property: £2,000

Combined Total SDLT:£175,750

Linked Transaction for Both Properties at Non-Residential Rates

  • Total Transaction Value: £2,000,000
  • Total SDLT if Linked at Non-Residential Rates: £89,500

Comparison of Scenarios

  • Total SDLT for Separate Purchases: £175,750
  • Total SDLT for Linked Purchase at Non-Residential Rates: £89,500

The comparison clearly shows a substantial reduction in liability of £86,250 in SDLT when both properties are linked and treated as a non-residential transaction. This effect is even more pronounced as the value of the residential element increases in mixed-use transactions. This underscores the importance of carefully structuring property transactions to capitalise on more favourable tax rates where applicable.

Circumstances Leading to Incorrect Assessment

There are several reasons why linked transactions might not be correctly identified, leading to an incorrect SDLT charge:

  • Lack of Awareness: Not everyone knows that buying multiple properties in certain situations can affect their SDLT payments.
  • Complex Rules: The rules around SDLT, especially concerning linked transactions, can be complicated. It’s easy to get wrong.
  • Incorrect Advice: Sometimes, the professionals helping with the purchase might not fully understand the rules themselves.
  • Oversight: During the busy conveyancing process, it’s possible to overlook the fact that different purchases are actually connected.

Argument for Reclaim

The basis for asking for some of your SDLT back rests on proving that the transactions were indeed linked, as defined by HM Revenue and Customs (HMRC). By showing that these purchases should have been treated as one big transaction for SDLT purposes, you can argue that you’ve paid too much tax. To support your claim, you’ll need:

  • Documentation: Keep all paperwork related to the transactions, as this will be vital evidence.
  • Detailed Timeline: A clear timeline showing when each transaction happened can help demonstrate their connection.
  • Expert Help: A tax professional who knows the ins and outs of SDLT can make a strong case to HMRC on your behalf.

 

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.