BN 21 - Stamp Duty Land Tax: Extension of Alternative Finance Reliefs

Who is likely to be affected?

1. Anyone wishing to use alternative financing arrangements for the purchase or lease of land and buildings.

General description of the measure

2. Current reliefs allow individuals to purchase land and buildings using alternative financing arrangements which are structured to preclude the payment of interest. The reliefs ensure that the stamp duty land tax due is no more than would be due under more traditional loan finance arrangements.

3. These reliefs will be extended so that all persons such as companies, clubs and trusts can take advantage of this form of financing.

Operative date

4. This measure has effect for all alternative finance purchases on or after Royal Assent to Finance Bill 2006.

Current law and proposed revisions

5. Sections 71A, 72, 72A and 73 Finance Act 2003 give equality of stamp duty land tax treatment to certain alternative finance purchases. These purchases characteristically involve several taxable transfers of property. The reliefs give parity of stamp duty land tax treatment by allowing later transactions in the chain to obtain relief if tax has been paid on an earlier transaction in the chain. Currently, these reliefs are restricted to purchases by individuals.

6. The schemes covered are those where;

• a financial institution purchases a property for a buyer, leases it to them and finally transfers the freehold to the buyer;
• a financial institution purchases a property for a buyer, leases it to them and transfers the freehold to them in small, regular tranches;
• a financial institution purchases a property for a buyer and re-sells it to Budget 2006 the buyer at a higher price with an interest free mortgage.

7. From Royal Assent to Finance Bill 2006, these reliefs will be extended to all persons, allowing parity of stamp duty land tax treatment to companies, clubs, trustees etc. who wish to avail themselves of these alternative financing products.

Further advice

8. If you have any questions about this change, please contact John Neale, 020 7147 2792, john.neale@hmrc.gsi.gov.uk.