Read the original guidance here:
HMRC SDLT: SDLTM21600 – Example 2, Subsale and minimum consideration rule

Example of a Subsale and Minimum Consideration Rule

This article explains a specific example of a subsale and how the minimum consideration rule operates when the parties involved are connected.

Scenario Overview

• A enters into a sale agreement with B for a piece of land, with a total payment of £1 million due at the time of completion.
• B then sells the same piece of land to C, with a payment of £900,000 payable upon completion.
• At the completion meeting, both sales are finalised at the same time: C pays £900,000 to B, and B pays £1 million to A.

B and C are Unconnected

If B and C are not connected and are acting independently, here’s what happens:

• B must submit a land transaction return for the sale to A, showing a transaction value of £1 million. However, B can apply for full relief.
• C must also submit a land transaction return, declaring a transaction value of £900,000 for the purchase from B.

Understanding the Transactions

The transactions comply with new legislation in these ways:

• These transactions are classified as “pre-completion transactions” which are independent transfers under paragraphs 1(1) and 1(2).
• The original agreement is the one between A and B. Here, B is the original purchaser, C is the transferee, and B is also the transferor.
• Since the transferee (C) is not considered to enter into a land transaction due to the pre-completion transaction, as outlined in paragraph 3, this rule applies.

Additionally, since the pre-completion transaction is not seen as a transfer of rights, paragraph 9 applies.

B’s Relationship with A

Without any special conditions, B is treated as entering into a land transaction with A for £1 million, according to section 44(3).

The pre-completion transaction qualifies as a subsale under paragraph 16, meeting all the necessary conditions found in paragraph 16(1). Hence, B can claim relief under sub-paragraph (6), subject to other conditions mentioned in paragraph 16 and paragraph 18.

C’s Purchase from B

C’s purchase from B is also governed by section 44(3). The consideration includes the amount that is paid for the free-standing transfer; however, since that amount is zero, the total consideration is simply the £900,000 paid by C to B as normal.

For the purposes of C’s purchase, A is seen as the vendor (as per paragraph 10(4)), and the land transaction return must reflect this.

B and C are Connected

If B and C are connected parties, C’s purchase would fall under the minimum consideration rule, as detailed from paragraphs 12 to 14, leading to the chargeable consideration being raised from £900,000 to £1 million.

Establishing the Chargeable Consideration

The consideration for C’s purchase must be the highest of three amounts:

• The initial £900,000 as previously established.
• The first minimum amount.
• The second minimum amount.

Here’s how the minimum amounts are determined:

First Minimum Amount

The first minimum amount, described in paragraph 13(1), is the £1 million that A and B agreed upon.

Second Minimum Amount

The second minimum amount is defined in paragraph 14. It totals the net amount of consideration given by the involved parties, outlined by sub-paragraph (2) as follows:

• The relevant parties in this case are B and C.
• The net amount of consideration from C is £900,000.
• The net amount of consideration from B equals £100,000—this is determined by taking the £1 million paid to A and subtracting the £900,000 received from C.

The combined net amount is £1 million (£900,000 from C plus £100,000 from B).

Final Consideration Amount

As a result, C’s total consideration for the acquisition ends up being £1 million, as it is the highest amount when comparing £900,000, £1 million, and £1 million.

In this case, A continues to be acknowledged as the vendor for C’s acquisition (as per paragraph 10(4)), and the land transaction return needs to be completed accordingly.