BN 23 - Stamp Duty Land Tax: Withdrawal of Unit Trust ‘Seeding Relief’

Who is likely to be affected?

1. Promoters, investors and potential investors in unit trust schemes which invest in property.

General description of the measure

2. ‘Seeding relief’ gives relief from stamp duty land tax when property is transferred into a newly formed unit trust in consideration of the issue of units. This measure withdraws seeding relief. There will now be a stamp duty land tax charge on the transfer of property into a unit trust in consideration of the issue of units, by reference to the market value of the land and buildings transferred.

Operative date

3. This measure has effect for all transfers into unit trusts on or after 22 March 2006. There are transitional provisions to protect contracts entered into before 2 pm on 22 March.

Current law and proposed revisions

4. Section 64A Finance Act 2003 currently gives relief where property is transferred to the trustees of a unit trust scheme in consideration of the issue of units, provided that after that transfer the transferor is the only unit-holder.

5. Section 64A will be repealed as regards land transactions the effective date of which is on or after 22 March 2006.

6. On general principles the chargeable consideration for a transfer of property into a unit trust in consideration of the issue of units will normally be the market value of the property. Section 53 Finance Act 2003 provides explicitly that the chargeable consideration on a transfer of property to a company ‘connected’ with the transferor, or in consideration of the issue of shares of a company ‘connected’ with the transferor, should be not less than the market value of the chargeable interest transferred.

Section 53 will be extended to apply to transfers to trustees of a unit trust scheme.

7. The measure will not apply where the transfer to the trustees is effected:

• In pursuance of a contract entered into and substantially performed before 2 p.m. on 22 March 2006 (‘the relevant time’), or
• In pursuance of any other contract entered into before the relevant time, provided that the transfer to the trustees is not an ‘excluded transaction’.

8. A transaction is an ‘excluded transaction’ where:

• The unit trust scheme was not established at the relevant time, or contained no assets, or almost no assets, at the effective time.
• At or after the effective time the contract is varied in a way that ‘significantly affects’ the transaction (see below).
• The subject-matter of the land transaction is not identified in the contract in a way that would have enabled its acquisition before the relevant time.
• Rights under the contract are assigned at or after the relevant time.
• The land transaction is effected in consequence of the exercise, at or after the relevant time, of an option, right of pre-emption or similar transaction.
• At or after the relevant time there is an assignment, sub-sale or other transaction (relating to the whole or part of the subject-matter of the contract) under which a person other than the contracting purchaser becomes entitled to call for a conveyance.

9. A variation ‘significantly affects’ the transaction only if;

• it substitutes a different purchaser, or
• the subject-matter of the land transaction is varied, or
• the consideration for the land transaction is varied.

Further advice

10. If you have any questions about this change, please contact Crispin Taylor, 020 7147 2793, Email.