REV BN 37 - Stamp Duty Land Tax: Technical Clarifications

Who is likely to be affected?

1. Purchasers and lessees/tenants of land, especially those engaging in more complex commercial transactions. Residential purchasers and tenants are unlikely to be affected.

General description of the measure

2. Stamp Duty Land Tax (SDLT) was introduced from 1 December, largely replacing stamp duty on land transactions. A number of changes were made in December 2003 to clarify points of uncertainty; counter avoidance and extend some reliefs. These new measures make further changes in these areas.

Operative date

3. The majority of measures apply from Budget Day. Those in paragraphs 15, 16 and 18 below apply from Royal Assent. The measure in paragraph 17 applies with effect from 1 December 2003.

Current law and proposed revisions

Anti-avoidance

4. Changes will clarify the provision for sub-sales (where a contracting purchaser sells on without taking title) where part only of the property is sub-sold.

5. Potential avoidance opportunities exploiting the interaction between the provisions on sub-sales and those on group relief and sale-and-leaseback will be closed.

6. Changes will be made so that the transitional provisions apply as the Government intended on contracts entered into pre-implementation, where there is a sub-sale post-implementation.

7. Changes to the relief for Private Finance Initiative (PFI) projects will ensure that such transactions are always notifiable.

Clarifications

8. Currently SDLT is charged on uncompleted contracts which are ‘substantially performed’ when the purchaser either pays or takes possession. Changes will make explicit how the charge works for agreements where the contracting purchaser has a right to direct a conveyance to a third party. Such agreements are common where land is to be developed and sold.

9. Under certain conditions, works carried out on land after it is purchased do not count as consideration. Changes will ensure that an unintended charge does not arise when a contract is later completed by conveyance.

10. ‘Agreements for lease’ are an important part of conveyancing in England, Wales and Northern Ireland. These look like contracts to grant a lease but in practice are often treated as equivalent to leases. There will be clarification on the treatment of agreements for leases which are ‘substantially performed’ so that for most purposes, and in particular when they are assigned, they are treated as leases. This will apply to all agreements for lease whenever they were entered into.

11. Similar changes will be made as regards ‘missives of let’ in Scotland. Missives of let are in essence agreements under which a lease is to be executed

12. To provide certainty, all variations that extend a lease or increase the rent will be treated as the grant of a new lease. All other variations will be disregarded. This will apply to all leases whether the original grant of the lease was within the scope of SDLT or not.

13. Minor amendments will be made to the rules on leases:

• to ensure the rules on surrenders and regrants work as intended;
• to clarify that where a lease ends part-way through a year only the rent actually paid is taken into account;
• to reduce the compliance burden where there is a rent review just before the end of the fifth year because a lease is expressed to commence from a date earlier than the date it is granted
• to provide that ‘rent’ for a period before a lease is granted is taxed as a premium and not as rent.

14. Changes will ensure shared ownership leases are treated in a way similar to their treatment under the old stamp duty regime.

Extensions of reliefs

15. Current rules provide relief for ‘chain-breaking’, relocation and similar transactions when people move house. However, the rules do not permit relief when people buy a new house but cannot move into it immediately and stay on in their old house. Changes will extend this relief provided people do not stay on in their old home for more than six months

16. Currently relief for ‘sale and leaseback’ transactions is restricted to commercial property. This restriction will be removed to help people entering into ‘home reversion plans’ to raise capital from their homes. The relief will also be extended to include ‘lease and leaseback’ transactions and transactions where part only of the property is leased back.

17. Changes will put it beyond doubt that when property passes to a beneficiary under or in satisfaction of an entitlement under a will, or on an intestacy, there is no charge to Stamp Duty Land Tax. This change, which reflects the law under the old stamp duty regime, will apply to all such transmissions of property since 1 December 2003.

Reduced compliance burden

18. To help reduce the burden on purchasers there will be changes to the administrative and compliance provisions with effect from Royal Assent of Finance Bill 2004:

• At present all acquisitions of a freehold interest have to be notified to the Inland Revenue where there is chargeable consideration, however small. This includes for example the purchase by a lessee of a residential property of the freehold reversion for a few hundred pounds. In future there will be no requirement to notify where the transaction is the acquisition of a freehold (or other “major interest in land”) where the consideration is less than £1000. Instead such transactions may be self-certified;
• The grant of a lease for seven years or less (a ‘short lease’) only has to be notified to the Inland Revenue if there is tax to pay, or a relief to be claimed. But all assignments of such leases by tenants have to be notified, whether or not there is tax to pay. In future a short lease is assigned this will only have to be notified to the Inland Revenue if there is tax to pay, or a relief to be claimed. Other assignments of short leases may be self-certified;
• Changes will make clear that the Inland Revenue will not charge two tax-geared penalties on the same amount of tax. This is the same as the rule for income tax;
• Current procedures for claiming relief do not cover all kinds of claim. There will be comprehensive rules similar to those for income tax; and
• Changes will ensure that the acquisition of ‘community interests in land’ will not have to be notified to the Inland Revenue when these interests are created in Scotland later this year.

Further advice

19. Further guidance on the provisions taking effect on Budget Day is on the Inland Revenue web-site at www.inlandrevenue.gov.uk/so. If you have any questions about these changes please contact the Stamp Taxes Enquiry Line on 0845 603 0135.

www.inlandrevenue.gov.uk