HMRC SDLT: SDLTM28110 – Reliefs: Alternative property finance
Principles and Concepts of Alternative Property Finance Reliefs
This section of the HMRC internal manual provides guidance on reliefs related to alternative property finance. It outlines the principles and concepts involved in offering tax reliefs for alternative property finance arrangements.
- Alternative property finance refers to non-traditional methods of property financing.
- Tax reliefs are available to support these alternative financing methods.
- The manual provides detailed guidance on eligibility and claiming processes.
- It is intended for use by HMRC staff to ensure consistent application of the rules.
Read the original guidance here:
HMRC SDLT: SDLTM28110 – Reliefs: Alternative property finance
Land Sold to a Financial Institution and Leased to a Person: England & Northern Ireland
This article explains the rules regarding the sale of land to financial institutions, followed by leasing arrangements. When pursuing these transactions, both parties should be aware of specific arrangements and conditions that need to be met in order to take advantage of relief from Stamp Duty Land Tax (SDLT).
Key Transactions Involved
In order to apply for this relief, it is essential to establish two main transactions:
1. Purchase of Major Interest
– A financial institution must buy a major interest or part of a major interest in land.
– This initial transaction is referred to as the first transaction.
Example: If a bank purchases a large building, this constitutes the first transaction where ownership interest is being transferred.
2. Lease or Sub-Lease Agreement
– Following the purchase, the financial institution must then grant a lease if it acquired freehold land or a sub-lease if it acquired leasehold land. This is considered the second transaction.
Example: After acquiring the building, the financial institution signs an agreement to lease it to a business.
If an undivided share of the major interest is bought, the ownership must be shared in trust. This means the land is held for the financial institution and another party, where both parties benefit from the agreement.
Further Transactions
In some cases, there may be additional transactions involved:
– Agreement for Transfer
– The agreement must allow the person involved to request that the financial institution, or whoever takes over their rights, transfers the major interest that was purchased.
This can happen as part of a single transaction or through multiple transactions over a period of time.
Understanding Section FA03/S71A(5)
This section sets out that further transactions won’t be considered as fully completed until the whole interest purchased by the institution has been formally transferred. Here are some important points:
– No Consideration of Substantial Payments
– Even if a substantial amount is paid or if possession is given, it does not count as substantially performed until full ownership is transferred.
– Granting of an Option
– Simply granting an option doesn’t mean the transaction is complete under the provisions of Section FA03/S46.
Impact of Compliance
The provisions in this section ensure that if all terms are met according to the rules outlined, only one charge of Stamp Duty Land Tax will apply when the transactions are undertaken correctly.
Clarity on Key Terms
– Major Interest: This refers to either full ownership of a property (freehold) or a significant long-term lease (leasehold).
– Undivided Share: This means that multiple parties have a claim or interest in a single property without defining specific portions of it for each party.
– Trust Arrangement: This is a legal setup where one party (trustee) manages the property for the benefit of another. In this case, it involves the financial institution and the person it leases to.
Conditions for Relief
For parties to benefit fully from this relief:
– All necessary arrangements and agreements must be formalised properly.
– All legal obligations under the SDLT rules must be adhered to throughout the transactions.
This way, property buyers can reduce their tax liability when dealing with financial institutions for property transactions.
Additional Examples
– If a property developer sells an office block to a bank, and then the bank leases it back to the developer, the proper procedures must be followed for tax relief to apply.
– If a housing developer sells a piece of land to a loan company and leases it out to a tenant, all transactions should be structured appropriately to ensure only one SDLT charge is effectively due.
Importance of Proper Documentation
Having clear and well-organised documentation is essential for any of these arrangements. It prevents disputes and ensures compliance with the legal frameworks set out by the government.
– Written Agreements: There should be properly drafted contracts that detail the agreements between the parties involved.
– Trust Deeds: If shares of the major interest are held in trust, appropriate legal documents must outline the responsibilities and rights of each party.
This will ensure a smooth transaction process and adherence to SDLT rules.
Limitations and Exceptions
There are specific situations where the standard relief provisions may not apply. For instance, if any term of the transaction is deemed non-compliant with tax laws, the relief might be nullified.
– Avoid shortcuts or informal agreements, as these could jeopardise the tax relief and lead to additional penalties or charges.
By understanding these fundamental principles and ensuring that all conditions are met, individuals and businesses can navigate property transactions with greater awareness of their tax obligations and potential benefits.