HMRC SDLT: Guide on Successive Subsales of Multiple Land Plots Under One Contract
Successive Subsales of Numerous Plots of Land Acquired Under a Single Contract
This section explains the process and implications of successive subsales of land plots acquired under a single contract. It details how the original contract is treated as separate transactions for each plot and the application of tax relief under specific legislation.
- “B” buys land from “A” for £10m, consisting of three plots.
- “B” subsells Plot1 to “C1” for £5m, Plot2 to “C2” for £4m, and Plot3 to “C3” for £1m.
- Each plot sale is completed on separate days: Day1 for Plot1, Day2 for Plot2, Day3 for Plot3.
- The original contract is treated as three separate contracts under FA03/S44.
- Each subsale is a separate transaction, qualifying for relief under FA03/SCH2A.
- Guidance does not apply to contrived transactions or single plot sales with staged completion.
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Read the original guidance here:
HMRC SDLT: Guide on Successive Subsales of Multiple Land Plots Under One Contract
Successive Subsales of Several Plots of Land Acquired Under One Contract
Overview
This article explains how to handle transactions involving the purchase and subsequent sale, or subsale, of multiple plots of land under a single contract. The focus will be on the timing of these transactions and how they are treated for tax purposes, particularly in relation to Stamp Duty Land Tax (SDLT).
Scenario Description
Let’s look at an example to illustrate this concept:
– Person B agrees to buy land from Person A for £10 million. This land includes three separate plots: Plot1, Plot2, and Plot3.
– The contract between A and B sets a specific date for the completion of the deal, but it also allows B to complete the sale for each plot individually before that date.
Now, B makes further agreements to sell these plots to other people:
– B reaches a deal with C1 to sell Plot1 for £5 million.
– B makes an agreement with C2 to sell Plot2 for £4 million.
– B also sets up a deal with C3 to sell Plot3 for £1 million.
The transactions unfold as follows:
– On Day 1, B completes the sale of Plot1, transferring it from A to B and then from B to C1 in one go. Plots 2 and 3 are not completed yet.
– On Day 2, B completes the sale of Plot2, transferring it from A to B and then from B to C2.
– On Day 3, B completes the sale of Plot3, transferring it from A to B and then from B to C3.
Separate Contracts
In this scenario, the contract between A and B should be viewed as three separate contracts according to the law specified in FA03/S44. Each contract corresponds to one of the plots and the respective completion dates. Therefore:
– For Plot1, the effective date of the transaction is Day 1.
– For Plot2, the effective date is Day 2.
– For Plot3, the effective date is Day 3.
This situation makes it clear that the three transactions are “linked” according to FA03/S108.
Treatment of Subsales
When considering the treatment of the subsales, as per FA03/S44, we identify three ‘original contracts’ as stated in paragraph 1 of FA03/SCH2A. Each of these subsales qualifies as a separate pre-completion transaction as described in:
– Paragraph 1(2) indicates that each subsale is a distinct transfer of ownership.
– Paragraph 2(2) supports that these transfers stand alone.
– Paragraph 16(8) confirms that these are qualifying subsales.
Since B can claim relief on the SDLT for each of these sales, the same principles apply. Specifically, B could receive full relief under paragraph 16(2) for each acquisition of Plot1, Plot2, and Plot3, provided no other issues prevent this relief, and the relevant conditions are satisfied.
For C1, C2, and C3, the tax outcome will follow the usual subsale rules, as explained in detail in other HMRC examples (see for instance SDLTM21600, SDLTM21620, and SDLTM21640).
Single Plot Division
It’s important to mention that this guidance also applies when the original contract is for a single plot that is later split into separate parts for subsale in a manner like that described. However, this is not likely to apply in situations where a single land transaction is intentionally divided in a way expected to reduce the SDLT owed.
Key Points to Differentiate
This scenario should not be confused with other arrangements, such as:
– A contract for a single plot that allows for occupation and payment in stages, culminating in a collective completion for the entire plot.
– A situation where B has an agreement to purchase one plot of land that will have one completion and then sells parts of that land to C (or to multiple individuals like C1, C2, etc.). In these cases, there is a single original contract, and the subsales would then fall under the different rules for partial subsales explained in paragraphs 16(3) and 16(4) of FA03/SCH2A.
Understanding Relief Claims
To claim relief for SDLT during the acquisition of these plots, the claims must follow certain conditions:
– It is necessary that B is the one acquiring the plots from A, making B the purchaser in these instances.
– Each of the subsale agreements (with C1, C2, and C3) needs to be valid contracts with clear terms for the sale of each respective plot.
– The sales have to be genuine, which means they cannot be set up simply to avoid tax liabilities.
B should maintain proper documentation of all agreements, including dates of completion and the amounts involved, to support any claims for relief made.
Practical Implications
In practice, understanding these rules will help individuals and businesses correctly navigate the complexities of land transactions, ensuring they meet all tax obligations without encountering unexpected liabilities. The guidance from HMRC clarifies the process and provides a framework for dealing with multiple transactions arising from a single purchase agreement.
It is essential for parties involved in such transactions to remain aware of the legislation governing each step. Keeping clear records and ensuring compliance with all regulations will facilitate smoother dealings and valid transactions.
In summary, the example above shows us how to treat successive subsales under a single contract, emphasizing the importance of understanding the specific details and timing of each transaction to operate effectively within the legal framework surrounding property sales and taxation.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Guide on Successive Subsales of Multiple Land Plots Under One Contract
