SDLTM24775 - Withdrawal of Relief: Dwelling Occupied by Non-Qualifying Individual
Relief may be withdrawn where a purchased property is subject to seeding relief and is a dwelling which a ‘non-qualifying individual’ is permitted to occupy. In such cases the dwelling concerned is referred to as ‘the disqualified dwelling’.
Withdrawal conditions
A ‘non-qualifying individual’ is any of the following:
- (a) an individual who is a ‘major participant’ in the PAIF/CoCS.
- (b) an individual who is connected with a ‘major participant’ in the PAIF/CoCS.
- (c) an individual who is connected with the PAIF/CoCS;
- (d) a ‘relevant settlor’;
- (e) the spouse or civil partner of an individual falling within paragraph (b), (c) or (d);
- (f) a relative of an individual falling within paragraph (b), (c) or (d), or the spouse or civil partner of a relative of an individual falling within paragraph (b), (c) or (d).
- (g) a relative of the spouse or civil partner of an individual falling within paragraph (b), (c) or (d);
- (h) the spouse or civil partner of an individual falling within paragraph (g).
A ‘major participant’ is defined as an individual who:
- (i) is entitled to a share of at least 50% either of all the profits or income arising from the PAIF/CoCS or of any profits or income arising from it that may be distributed to participants, or
- (ii) would in the event of the winding up of the PAIF or CoCS be entitled to 50% or more of the assets of the scheme that would then be available for distribution among the participants.
The meaning of ‘connected person’ in this part is the same as that in section 1122 of the Corporation Tax Act 2010 (connected persons), disregarding subsections (7) and (8).
A ‘relevant settlor’ in relation to a land transaction, means an individual who is a settlor in relation to a relevant settlement.
A settlement, in this part, has the same meaning as in Chapter 5 of Part 5 the Income Tax (Trading and Other Income) Act 2005.
A ‘relative’ means brother, sister, ancestor or lineal descendant.
The amount of the withdrawal
Where a non-qualifying individual is permitted to occupy a property, relief is withdrawn in relation to the chargeable transaction upon which relief has been allowed which included the interest in that property. The amount of the withdrawal is the amount that would have been subject to SDLT had seeding relief not been claimed, or an ‘appropriate portion’ of that tax. An ‘appropriate portion’ refers to the extent to which the whole of the consideration for the transaction in which the occupied dwelling was acquired was attributable to that dwelling and other property acquired in the same transaction.
Relief can only be withdrawn in respect of a chargeable interest where that interest (or one derived from it) is still held by the scheme at the point the non-qualifying individual is first permitted to occupy the property in question.
Where the non-qualifying individual is first permitted to occupy the property only after the control period has ended, relief can only be withdrawn if at that point, the scheme does not meet the relevant Genuine Diversity of Ownership condition applying to it.
Example 5
On 1 September 2024, PAIF Echo acquires major interests in a
portfolio of residential properties for £200 million and issues the vendor
units in the PAIF in consideration for those properties. PAIF Echo claims
seeding relief, this is the ‘first property seeding date’ as it meets all the
basic conditions for seeding relief, with the seeding period ending 18
months later on 31 March 2026. On 1 July 2026 (during the control
period), Ms Lima – who is an individual connected with the PAIF – becomes
entitled to live in one of the properties acquired by the PAIF on 1
September 2024. As she is a non-qualifying individual, the property she
is permitted to occupy becomes a ‘disqualified dwelling’ and relief
is withdrawn.
The amount of relief withdrawn is the proportion of tax that would have been payable if seeding relief had not been granted in respect of the transaction that took place on 1 September 2024.