Stamp Duty Land Tax: A Practical Guide for Lawyers (2nd edition)

Table of Contents

PART ONE: SDLT: AN OVERVIEW

Key features of the SDLT regime
Introduction

PART TWO: THE SDLT REGIME IN DETAIL

1. SCOPE OF SDLT
1.1. Land transactions – the trigger
1.2. SDLT on conveyance contracts and completions
1.3. Substantial performance – the charge to SDLT – no more ‘resting on contract’
1.4. Sub sales and assignments of rights under contracts
1.6. Chargeable transactions
1.7. Chargeable consideration
1.8. Surrender and re-grant
1.9. Exchange relief abolished
1.10. Options and rights of pre-emption

2. CALCULATING THE CHARGE TO SDLT
2.1. Consideration other than rent
2.2. Relief from aggregation for collective enfranchisement by leaseholders
2.3. Relief from aggregation for transactions entered into in pursuance of the crafting community right to buy
2.4. Rate of SDLT on residential property - consideration other than rent
2.5. Rate of SDLT for non-residential or mixed property - consideration other than rent
2.6. The charge to SDLT on leases

3. RELIEFS
3.1. Introduction to SDLT relief’s
3.2. Disadvantaged areas relief for residential property
3.3. Sale and leaseback relief
3.4. Group relief
3.5. Reconstruction relief
3.6. Acquisition relief
3.7. Charities relief
3.8. Relief for certain residential property
3.9. Relief for compulsory purchases facilitating development
3.10. Relief for land transactions entered into in fulfillment of planning obligations by a public authority or developer
3.11. Demutualisation relief for insurance companies
3.12. Demutualisation relief for building societies
3.13. Relief for incorporation of limited liability partnership (‘LLP’)
3.14. Relief for land transfers involving public bodies in the case of a re-organisation under statute
3.15. Relief for local political constituency associations on land transfers made as a result of a parliamentary constituency re-organisation
3.16. Relief for land transactions involving certain museums and cultural organisations
3.17. Relief for right to buy transactions, shared ownership leases, share ownership trusts and related transactions
3.18. Relief for certain acquisitions by a registered social landlord
3.19. Alternative property finance relief – Sharia’a mortgages
3.20. Relief for certain public bodies - PFI Projects
3.21. Relief for new zero-carbon homes
3.22. Miscellaneous relief’s
3.23. Property authorised investment funds: proposed relief for conversion of an authorised unit trust to an OEIC

4. LAND TRANSACTIONS INVOLVING PARTNERSHIPS
4.1. Background
4.2. Overview of the current rules for extraordinary transactions
4.3. Application of SDLT to partnerships – general principles
4.4. Application of SDLT to ordinary partnership transactions
4.5. Partnership transactions to which special provisions apply (‘extraordinary transactions’)

5. SDLT – GENERAL ANTI-AVOIDANCE MEASURES
5.1. Disclosure of SDLT schemes
5.2. SDLT general anti-avoidance rule

6. THE SDLT REGIME - COMMENCEMENT AND TRANSITIONAL PROVISIONS
6.1. Commencement of SDLT Regime
6.2. The SDLT transitional regime
6.3. Counterparts and duplicates

7. THE ADMINISTRATION AND COLLECTION OF SDLT
7.1. Notifiable transactions
7.2. The land transaction return
7.3. Registration of land transactions
7.4. Claims not included in the land transaction return
7.5. Preservation of records
7.6. Enquiries into returns
7.7. Payment of tax
7.8. Deferring payment of SDLT in the case of uncertain or contingent consideration
7.9. Assessments
7.10. Interest and penalties
7.11. Information powers
7.12. Appeals
7.13. Collection of unpaid SDLT
7.14. Application of SDLT to companies
7.15. Application of SDLT to unit trusts
7.16. Application of SDLT to open-ended investment companies (‘OEICs’)
7.17. Application of SDLT to joint purchasers
7.18. Application of SDLT to trusts and trustees
7.19. Application of SDLT to persons acting in a representative capacity
7.20. Application of SDLT to the Crown
7.21. SDLT and pension funds
7.22. Assignment of lease - responsibility of assignee for returns

PART THREE: THE SDLT PROCESS

8. THE SDLT PROCESS
8.1. Forms and letters in the SDLT process
8.2. The Forms
8.3. Submission and Processing of the Return
8.4. Completing the Forms
8.5. E-filing

PART FOUR: SDLT BY TRANSACTION

9. SDLT BY TRANSACTION
9.1. Purchase of freehold
9.2. Purchase of existing lease
9.3. Grant of new lease
9.4. Rent reviews and rent variations
9.5. Sub-sales/assignments of rights
9.6. Sale and leaseback
9.7. Surrender and merger of leases
9.8. Exchanges
9.9. Carrying out of works
9.10. Holding over
9.11. Options and pre-emption rights
9.12. Grant of Easements and Rights
9.13. Statutory planning etc agreements
9.14. Gifts and transfers at an undervalue
9.15. Transfers in matrimonial cases
9.16. Miscellaneous

PART FIVE: SDLT GLOSSARY

PART SIX: SDLT FORMS AND GUIDANCE NOTES

Executive Summary

Key features of the SDLT regime:

- SDLT is chargeable whether or not the land transaction is effected by an instrument.
- If there is an instrument, SDLT is chargeable whether or not that instrument is executed in the UK.
- SDLT applies regardless of whether or not any party is present or resident in the UK.
- A certificate replaces the old duty ‘stamp’.
- SDLT is not voluntary – a land transaction return must be filed together with a cheque or penalties and interest are incurred.
- The land transaction return must be signed by the purchaser or his attorney.
- SDLT on leases is based on the net present value of any rent (charged at a rate of 1%) as well as any premium (charged at rates between 1% and 4%) once the nil rate band is exceeded.
- Original documents are no longer sent for stamping.
- No adjudication – self assessment applies.

Main changes since first edition:

- Introduction of full online submission process (‘e-filing’);
- Removal of requirement to submit payment at same time as SDLT return;
- Updating of the land transaction form and guidance notes;
- Simplification measures to remove certain transactions from the scope of SDLT;
- New rules to deal with the transfer of land into and out of partnerships;
- The introduction of a range of anti-avoidance measures to prevent exploitation of the rules.

Introduction

It is now nearly four years since SDLT was introduced, bringing in an entirely new system of charging tax on UK land transactions. Around £10 billion a year is now collected. SDLT is self-assessed. There is no equivalent to the stamp duty adjudication procedure whereby a case could be presented to the Stamp Office for a definitive ruling.

Since 1 December 2003, while practitioners and officers of HM Revenue & Customs (the combined body of the former Inland Revenue and HM Customs & Excise) have been familiarising themselves with the operation of SDLT, there have been a number of changes, both to the underlying legislation and to the administration of the tax; many of these resulting in a smoother process for the actual transmission of the land tax return through the sorting out of some procedural quirks. Other changes have resulted in the closure of loopholes in the law which were being exploited to gain SDLT advantages (or to avoid payment of SDLT altogether).

Key changes since the publication of the first edition of this book include:

- Removal of disadvantaged areas relief except in very limited circumstances;
- Increase in exempt threshold for residential transactions;
- Introduction of full online submission process (‘e-filing’);
- Updating of the land transaction form and guidance notes;
- Simplification measures to remove certain transactions from the scope of SDLT and to clarify the application of SDLT to particular transactions e.g. the transfer of an interest in a land-owning UK trading partnership;
- Introduction of anti-avoidance measures to counter exploitation of the group relief rules, the use of lease variations in return for the payment of a capital sum, and the ending of the exemption for transfers to unit trusts;
- Requirement to disclose to HMRC details of high value commercial property transactions which have SDLT avoidance as their main (or one of their main) purpose(s);
- Removal of requirement to submit payment at same time as SDLT return (FA 2007);
- New rules to deal with the transfer of land into and out of partnerships (FA 2007);
- Introduction of a general anti-avoidance rule to disregard certain stages of a transaction which have produced a lower SDLT charge than a straightforward disposal and acquisition (FA 2007).

The key features of the regime remain the same, however, and are set out below:

An Overview of SDLT

SDLT is payable on UK land transactions. Land transactions caught by SDLT include the conveyance of a freehold and the assignment of a lease. The grant, surrender or variation of a lease may also attract SDLT and if a person acquires the benefit of any obligation, restriction or condition that affects the value of any interest in land (for example, the grant of an easement or the release of a restrictive covenant) this may also constitute a land transaction for SDLT purposes. The grant of an option or of a pre-emption right is a land transaction.

SDLT only applies if there is chargeable consideration for the transaction. If there is no chargeable consideration, the transaction is normally exempt provided the parties are unconnected. There are other exemptions, for instance, the grant of a license and the acquisition of a security interest or charge over UK land. Some transactions must be notified to HMRC even though a relief is available. Relief’s are claimed in the land transaction return.

In most cases the chargeable consideration is any consideration in money or money’s worth given directly or indirectly by the purchaser or someone connected with him. The categories of chargeable consideration for SDLT are wider than those which applied for stamp duty purposes and include, in some cases, an undertaking to carry out works or provide services. A reverse premium is not chargeable consideration. Special rules apply to treatment of deferred, contingent or uncertain consideration.

The rate of SDLT on purchase prices and lease premiums varies depending on the amount of chargeable consideration for the transaction, with the highest rate of 4% applying to transactions with a chargeable consideration of more than £500,000. The threshold for residential property is £125,000 and for non-residential or mixed property, £150,000. On the grant of a lease, SDLT is charged, once the relevant threshold is exceeded, at the rate of 1% on the net present value of the rents payable throughout the lease term, discounted at an annual rate of 3.5%. There are complex rules for determining the SDLT charge on leases with variable rent, such as turnover leases and leases with market value rent reviews.

SDLT must be paid within 30 days of the effective date of the relevant transaction which in most cases will be the date of completion. SDLT may be due before completion if the contract is substantially performed before that date (including where the purchaser has taken possession and where a substantial amount of the consideration is paid). If this is the case, the effective date of the transaction is the date when the contract is substantially performed.

The purchaser is obliged to deliver a land transaction return to HMRC within 30 days of the effective date of the transaction. SDLT due must also be paid within 30 days of the effective date if interest and penalties are to be avoided, but payment does not necessarily have to be made at the same time as the return (from March 2007). Then if the land transaction return has been filled in satisfactorily and the right amount of SDLT has been paid, HMRC will issue a certificate to the purchaser. Without the certificate, or a self-certificate if no land transaction return is required, the land transaction cannot be registered at the Land Registry.

Author

Ann L. Humphrey is a solicitor specialising in indirect tax, and a member of the Law Society’s Revenue Law Committee. Philip Freedman is a property partner at Mishcon de Reya, and a member of the Law Society’s Land Law Committee.