Read the original guidance here:
HMRC SDLT: SDLTM21610 – Example 3, Assignment of part

Understanding the Assignment of Rights in Property Transactions

This article explains how the rules apply when someone assigns their rights related to only part of a piece of land covered by an original contract. We look closely at a specific example involving the sale and purchase of land.

The Scenario

Let’s consider a situation where:

• A enters into a sale and purchase agreement with B for a piece of land valued at £1 million that is to be paid on completion.
• The land is divided into two parts:
  • Plot 1 valued at £600,000
  • Plot 2 valued at £400,000
• B assigns their rights to Plot 2 under the contract to C.
• C completes the purchase of Plot 2 and pays A £400,000.
• B pays A £600,000 to complete the purchase of Plot 1.

Required Returns

In this scenario, there are important returns that need to be made:

• B must submit a land transaction return for the transaction concerning Plot 2, which is valued at £400,000, but they can claim full relief.
• C must also submit a land transaction return for the £400,000 purchase of Plot 2.
• B must submit another return for the purchase of Plot 1, which is for £600,000.

Classification of Transactions

The transactions fall under certain guidelines in Schedule 2A:

• The transactions are defined as pre-completion transactions according to paragraphs 1(1) and (2).
• There is an ‘assignment of rights’ under paragraph 2(1).
• In accordance with paragraphs 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 is the transferor.
• C is not viewed as entering into a land transaction because of the pre-completion transaction (paragraph 3).
• Paragraphs 4 and 5 can be understood as if there was a separate original contract for Plot 2 (paragraph 7).

Details on the Transferee, C

The situation for transferee C is mainly explained in paragraph 4, under the assumption that there was a ‘separate contract’ for Plot 2 (paragraph 7):

• C is regarded as the purchaser as defined under section 44(3) (paragraph 4(4)).
• According to paragraph 4(2), this is valid and is not blocked by the phrase ‘between the same parties’ in section 44(10).
• Because paragraph 4(3)(a) is satisfied, paragraph 4(5) comes into play. This paragraph, when combined with paragraph 4(9), defines how to interpret paragraph 1 of Schedule 4 to determine the chargeable consideration for C‘s purchase.
• Importantly, there was no consideration paid for the assignment of rights.
• The £600,000 paid by B for Plot 1 is seen as part of a different contract altogether. Thus, the only chargeable consideration for C is the £400,000 paid upon purchasing Plot 2.

The Role of the Transferor, B

Paragraph 5 primarily covers the position of transferor B. This must also be interpreted as if there were a separate contract for Plot 2 (paragraph 7):

• B is considered the purchaser under a notional land transaction that shares the same date as C‘s transaction (paragraph 5(1)).
• The value for B‘s acquisition is determined by paragraph 5(3), which indicates that it is £400,000, as that’s the amount paid by C to A regarding the original contract (see point (a) regarding amount ‘A’ under paragraph 5(5)).
• Since the transactions qualify under paragraph 15, B is eligible to claim full relief against the tax due from the notional land transaction (sub-paragraph 4).

The Acquisition of Plot 1

This leads us to the acquisition of Plot 1 by B. This transaction still falls within section 44:

• There is a land transaction defined under section 44(3).
• The chargeable consideration is the £600,000 that B pays for Plot 1.

Breaking Down the Consideration

From this example, it’s clear how to distinguish the portion of the total consideration that relates to Plot 1 versus Plot 2. Generally, when determining the consideration under the original contract, it should be allocated fairly and justly, as specified under paragraph 4 of Schedule 4.

Further Considerations

If the original contract is for a freehold interest, an assignment of rights—or subsale—that includes granting a lease from that freehold cannot be considered a pre-completion transaction. This is because the lease does not form part of the subject-matter of the original contract (refer to paragraph 1(2)(a) and (7)).

Similarly, if the original contract involves a head-lease, and the assignment includes granting a sub-lease, the same principle applies.