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HMRC SDLT: Example of Land Assignment Rules for Partial Land Rights Transfer

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.