HMRC SDLT: SDLTM21600 – Example 2, Subsale and minimum consideration rule

Principles and Concepts of SDLTM21600

This section of the HMRC internal manual discusses the SDLTM21600, focusing on the subsale and minimum consideration rule. It provides guidance on the application of these rules within the context of property transactions.

  • Explains the subsale rule, which involves a transfer of property rights before the completion of the initial sale.
  • Details the minimum consideration rule, ensuring a baseline value is met in transactions.
  • Offers examples to illustrate the application of these rules in practical scenarios.

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.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM21600 – Example 2, Subsale and minimum consideration rule

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Written by Land Tax Expert Nick Garner.
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