UK: Stamp Duty Land Tax

Last Updated: 6 September 2004
Article by Ian Hyde

Originally published August 2004

Stamp duty land tax (SDLT) is still creating issues and planning opportunities for all parties in the Real Estate market. Changes to the regime continue to be made as the Revenue seeks to keep up with the latest SDLT planning.

Those involved in property transactions need to be aware not only of the planning opportunities but also their obligations to make returns and the impact transactions may have on future structuring.

Action points

  • review each transation to see if planning is possible
  • take care that reliefs still apply
  • maintain SDLT records and review transactions to ensure clawback liabilities do not arise

SDLT Planning

A number of planning structures are available under SDLT.

  • Undertaking Schemes
    Notwithstanding recent antiavoidance provisions acquisition relief on the transfer of a let property or ‘undertaking’ is still available to reduce the rate of SDLT to ˝% where it is combined with the assumption of debt.
  • SPV Schemes
    There are still SPV schemes which manage to get past the new antiavoidance measures which were introduced to clamp down on the use of SPVs as a measure of avoiding SDLT.

Depending on the structure adopted there may be stamp duty charge at ˝% but in some cases the structure can be implemented at the last minute when there are ‘arrangements’ in place with the buyer.

  • Unit Trust Schemes
    Using a new relief in the SDLT regime it is possible for sellers to transfer property into a unit trust structure and sell it to the buyer free of SDLT.
  • ‘Prudential’ Schemes
    The Revenue accept that so called ‘Prudential’ schemes work under the SDLT regime in the same way as they did under the stamp duty regime. In essence the Seller contracts to sell bare land for a certain amount but also contracts to construct a building on the land. Provided certain conditions are met SDLT will only be payable on the land element.

SDLT Reliefs

The reliefs from SDLT are extremely valuable but the introduction of wide ranging anti-avoidance conditions have meant that care needs to be taken to ensure the relief is still available.

  • Disadvantaged Areas Relief
    This should always be considered first. If a commercial property situation in a disadvantaged area is transferred, there is no SDLT to pay.
  • Sub-sale Relief
    It is still possible to obtain relief from SDLT on what is commonly known as a subsale. This is where A contracts to sell property to B, but B directs that the conveyance be conveyed to C (or assigns its right to have the property conveyed to it). If the relief is available SDLT will only be payable by C not B. Under the SDLT version of the relief a new condition has been added requiring that the first contract must not be ‘substantially performed’ early. In practice this means that neither should take possession of the property or be entitled to receive rents early.
  • Sale and Leaseback Relief
    Sale and leaseback transactions have been very common and now it is possible under the new regime for the leaseback element to be exempt from SDLT, a valuable relief in view of the new lease duty charge.
  • Group Relief
    Group relief survives under the new regime in much the same form except that the clawback regime for degrouping transferee companies has been widened. There is no longer any need to make a separate application to claim the relief but the SDLT return must still be completed.

Compliance Issues

Holders of property need to consider carefully their compliance position under the new regime. In particular the number of circumstances where additional returns and SDLT payments are required have substantially increased. For both corporate groups and tenants it is essential that activity is monitored to manage the risk of liabilities and penalties arising:-

  • Group Issues
    Broadly speaking, if a company benefits from any group, acquisition or reconstruction relief so that no SDLT is payable on an acquisition, the SDLT will be clawed back if, within 3 years of the acquisition, there is a change of control of the buyer and the property is still held in that company (or another member of the buyer's group). Additional SDLT liabilities can also arise from distributions in specie where there have been prior transfers. Groups need to be aware of these clawback provisions and monitor changes in group structure to ensure that they are not triggered or if they are that the group is not liable.
  • Lease Issues
    The SDLT legislation requires additional returns and in most cases SDLT to be paid by tenants in a variety of circumstances. For example, on the variation or renewal of a lease, any rent reviews in the first five years, the fixing of an ‘abnormal’ rent review at any time, assignment of a previous SDLT exempt lease and so on. For property and tax managers there is a practical issue in putting in place management systems which ensure the relevant Land Transaction return can be completed within 30 days of these events.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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