Novation Example: Land Sale Agreement Transferred from B to C, £1.1

SDLT on a Buyer Change by Novation Before Completion

Where a property buyer is replaced before completion by a true novation, the old contract is ended and a new contract is created with the new buyer. For SDLT, this is not treated like a simple assignment. The new buyer is taxed on the full consideration for the purchase, which can include both the price paid to the seller and any payment made to the outgoing buyer to step aside.

• If the original contract is cancelled and replaced, the incoming buyer’s rights come from the new contract, not the old one.
• In that case, the incoming buyer is the purchaser for SDLT purposes when the property completes.
• Any payment by the incoming buyer to the outgoing buyer for giving up its place can be part of the SDLT chargeable consideration.
• In the example, SDLT is charged on £1.1 million: £1 million paid to the seller and £100,000 paid to the original buyer.
• The outgoing buyer is not treated as the purchaser under a land transaction on those facts, so it does not need to file an SDLT return or claim relief.
• The legal effect matters more than the label: a document called a novation must genuinely discharge the old contract and release the original parties.

Scroll down for the full analysis.

SDLT and novation before completion: who is taxed, and on what amount?

This page explains how SDLT applies where an original buyer is replaced by a new buyer before completion through a deed of novation. The point matters because a novation is not treated in the same way as a simple assignment of contract rights. That affects who is treated as the purchaser, whether the original buyer has any SDLT filing obligation, and what counts as chargeable consideration.

What this rule is about

In land transactions, parties sometimes change the buyer before the property is actually conveyed. That can happen in different legal ways. One possibility is an assignment, where the original contract stays in place but rights under it are transferred. Another is a novation, where the old contract is discharged and replaced with a new one.

The source material deals with the second situation. Its focus is on a pre-completion transfer effected by novation. The key question is how SDLT applies when:

• the original buyer drops out before completion,
• a new buyer takes its place under a new contract, and
• the new buyer pays the outgoing buyer for giving up its position.

The practical issue is whether SDLT is charged only on the amount paid to the seller, or also on the amount paid to the outgoing buyer.

What the official source says

The example in the official material works as follows:

• A agrees to sell land to B for £1 million on completion.
• Before completion, A, B and C enter into a deed of novation.
• Under that deed, C replaces B as purchaser.
• C pays B £100,000 for B giving up its rights under the first contract.
• A and B are released from their obligations to each other.
• The original A-B contract no longer exists and is replaced by a new A-C contract.
• C then completes the purchase from A and pays A £1 million.

The official conclusion is that the novation is a pre-completion transfer and a free-standing transfer. It is not treated as an assignment of rights under the original contract, because C’s right to require the conveyance comes from the new contract with A, not from the original contract between A and B.

As a result, C is not treated as entering into a land transaction merely because of the novation itself. Instead, on completion C is the purchaser under the land transaction. The chargeable consideration is £1.1 million, being:

• £1 million paid by C to A for the land, and
• £100,000 paid by C to B for B to give up its position under the original contract.

The source also states that B is not the purchaser under a land transaction. On those facts, B does not need to file an SDLT return and does not need to claim relief.

What this means in practice

The main practical point is that a novation does not simply remove the outgoing buyer from the SDLT picture and leave tax to be calculated only on the amount paid to the seller. If the incoming buyer pays the outgoing buyer to step aside, that payment can form part of the chargeable consideration for the eventual land transaction.

That is what happens in the example. C does not just pay £1 million for the land. C also pays £100,000 to secure B’s withdrawal and replacement. The official view is that the total relevant consideration is therefore £1.1 million.

The second practical point is that the outgoing buyer, B, is not treated as the purchaser under a land transaction merely because it was party to the original contract before novation. Once the original contract has been extinguished and replaced, the eventual purchaser is C on completion.

This distinction matters because people sometimes assume that any change of buyer before completion is just an assignment. The source makes clear that a true novation is different. The legal route by which the new buyer obtains the right to call for the conveyance is critical.

How to analyse it

When looking at a buyer substitution before completion, a sensible way to analyse the SDLT position is to ask these questions.

• Has the original contract remained in existence, or has it been discharged?
• Does the incoming buyer obtain its right to the property under the original contract, or under a new contract?
• Are the original parties released from their obligations to each other?
• Is there any payment by the incoming buyer to the outgoing buyer for giving up rights or stepping out of the transaction?
• Who is actually the purchaser when the land is conveyed?

If the arrangement is a true novation, the original contract is replaced. The incoming buyer’s rights arise under the new contract, not the old one. On the source material, that means the novation is not treated as an assignment of rights under the original contract.

You then need to identify the full amount of chargeable consideration connected with the completed acquisition. On the example given, that includes both:

• the amount paid to the seller for the land, and
• the amount paid to the outgoing buyer for relinquishing its rights.

It is also important not to assume that the outgoing buyer must file an SDLT return simply because it once had a contract to buy the land. On the facts in the example, it is not the purchaser under a land transaction.

Example

A agrees to sell development land to B for £1 million. Before completion, B no longer wants to proceed. A, B and C sign a deed under which the A-B contract is cancelled and replaced by a new A-C contract on the same price. C pays B £100,000 to take over the deal, and later pays A £1 million on completion.

On the official example, SDLT is worked out by reference to £1.1 million, not £1 million. That is because the £100,000 paid to B is part of the chargeable consideration for C’s acquisition. B is not treated as the purchaser under a separate land transaction and does not need to file a return on those facts.

Why this can be difficult in practice

The difficult part is often deciding whether the arrangement is truly a novation or whether, in substance and legal effect, it is an assignment or some other pre-completion transfer structure. Labels alone are not enough. A document may be called a novation, but the SDLT result depends on what rights and obligations actually survive and where the incoming buyer’s rights come from.

Another practical difficulty is identifying all elements of consideration. Parties may focus only on the purchase price paid to the seller and overlook side payments made to the outgoing buyer. The source shows that those side payments may still matter for SDLT.

The example is also fact-specific. It assumes a clean novation in which the original contract ceases to exist and A and B are fully released from obligations to each other. If the facts differ, the SDLT analysis may also differ.

Key takeaways

• A true novation before completion is not treated in the same way as an assignment of rights under the original contract.
• If the incoming buyer pays the outgoing buyer to give up its position, that payment can form part of the chargeable consideration for SDLT.
• Where the original contract is extinguished and replaced, the outgoing buyer is not, on the example given, the purchaser under a land transaction and does not need to file an SDLT return.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Novation Example: Land Sale Agreement Transferred from B to C, £1.1

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