HMRC SDLT: SDLTM21590 – Example 1, Simple assignments of rights

Simple Assignments of Rights

This section of the HMRC internal manual, titled “SDLTM21590 – Example 1, Simple assignments of rights,” provides guidance on the principles and concepts related to simple assignments of rights. It is designed for internal use by HM Revenue & Customs staff.

  • Explains the process of assigning rights in a straightforward manner.
  • Clarifies the legal implications and requirements for such assignments.
  • Offers examples to illustrate the application of these principles.
  • Aims to ensure compliance with relevant tax regulations.

Understanding Simple Assignments of Rights in Land Transactions

This article explains how the rules apply when rights under a land sale agreement are assigned to another party. It illustrates this through an example involving three parties: A, B, and C.

Example Scenario

  • A has a sale and purchase agreement with B for a piece of land worth £1 million, payable upon completion.
  • B assigns its rights under this contract to C for £100,000.
  • C then completes the purchase and pays A the full amount of £1 million.

Expected Outcomes

  • B is expected to file a land transaction return based on a transaction worth £1 million. However, B can also claim for full relief.
  • C must submit a land transaction return that reflects a value of £1.1 million, which includes both the payment made to A and the amount paid to B for the assignment of rights.

Schedule 2A Transactions

The transactions here fall under Schedule 2A, which categorizes them as follows:

  • Paragraphs 1(1) and (2) define the transactions as pre-completion transactions.
  • Paragraph 2(1) identifies the pre-completion transaction as an assignment of rights.
  • According to paragraph 1(1), 1(2) and 2(3):
    • The original contract is between A and B.
    • B is the original purchaser.
    • C is the transferee.
    • B acts as the transferor.
  • Paragraph 3 clarifies that C is not treated as entering a land transaction as a result of the assignment (pre-completion transaction).

The Position of C (Transferee)

Paragraph 4 mainly addresses the position of C:

  • C is recognized as the purchaser in a land transaction as per section 44(3) (as mentioned in paragraph 4(4)).
  • Paragraph 4(2) states that C’s status is not hindered by section 44(10), which mentions ‘between the same parties.’
  • Since paragraph 4(3)(a) is fulfilled, paragraph 4(5) becomes applicable. This means the chargeable consideration for C’s acquisition is determined by paragraph 1 of Schedule 4.
  • Both the £1 million paid to A and the £100,000 paid to B are included in C’s chargeable consideration, bringing the total to £1.1 million.
  • As per paragraph 8(3), A is identified as the vendor in C’s acquisition. The land transaction return should therefore reflect this.

The Position of B (Transferor)

Paragraph 5 mainly covers the circumstances for B, with additional relief options under paragraph 15:

  • These transactions fall under paragraph 5(1). Here, B is treated as the purchaser in a hypothetical land transaction that shares the same effective date as C’s transaction.
  • Paragraph 5(3) outlines that the chargeable consideration for this hypothetical transaction consists of two amounts:
    • Amount A: £1 million, which is the consideration B is deemed to have paid to A under the original contract.
    • Amount B: £0, meaning there is no additional consideration paid by B.
  • Therefore, the total chargeable consideration for B’s notional transaction comes to £1 million.
  • Paragraph 15 applies to these transactions, allowing B to claim full relief from tax, provided the conditions stated in paragraphs 15 and 18 are met.

Key Concepts Explained

Assignments of Rights

An assignment of rights occurs when one party (B) transfers its rights or interests in a land transaction to another party (C). This usually involves a financial arrangement where the assigning party receives some payment in exchange for the rights, which can be a significant aspect of property transactions.

Land Transaction Return

A land transaction return is a document that must be submitted to HMRC when certain property transactions occur. This is essential for tax purposes and includes the details of the transaction, particularly the consideration paid. In this scenario, both B and C need to file returns to correctly reflect the respective transactions they have engaged in.

Chargeable Consideration

Chargeable consideration refers to the total value upon which tax is calculated in a land transaction. In this case, for C, it includes both the amount paid to A and the amount for the assignment to B, totalling £1.1 million. This concept is vital for understanding how stamp duty land tax is assessed in property transactions.

Relief from Tax

Relief from tax is a provision that allows parties to reduce their tax liabilities under certain circumstances. In this scenario, B is entitled to full relief from tax on the consideration due to the nature of the transaction and the relief provisions in the paragraphs discussed earlier. Understanding these relief provisions is useful for effectively managing tax obligations in property transfers.

Pre-Completion Transactions

Pre-completion transactions refer to actions taken before the completion of a property sale or transfer. This includes such assignments and clarifies how these transactions are treated for tax purposes. In this example, both the assignment by B and the subsequent purchase by C are classified as pre-completion transactions.

The Roles of Each Party

Role of A

A remains the seller throughout this process. A’s obligation is to receive payment and transfer the property to C as per the original agreement. This straightforward role highlights the importance of clearly defined agreements in real estate transactions.

Role of B

B acts as a bridge in this transaction. B not only engages in an initial purchasing agreement with A but also assigns its rights to C for a fee. This demonstrates how one can leverage real estate agreements, potentially consuming less capital while gaining transactional benefit.

Role of C

C is the ultimate buyer of the property and financially responsible for both the total consideration of £1 million to A and the £100,000 to B as a means of obtaining the rights to the contract. C’s involvement illustrates the strategic financial maneuvers individuals can make in property transactions.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM21590 – Example 1, Simple assignments of rights

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Written by Land Tax Expert Nick Garner.
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