Read the original guidance here:
HMRC SDLT: SDLTM29230 – Reliefs: Financial Institutions in Resolution: Stamp Duty Land Tax – Exceptions

Stamp Duty Land Tax Exemptions for Failed Financial Institutions

This article explains how Stamp Duty Land Tax (SDLT) exemptions work when a financial institution fails and enters a resolution process. It focuses on certain transfers of land that occur during this process as regulated by the Banking Act 2009 and the Finance Act 2003.

What is a Resolution Under the Banking Act 2009?

When a financial institution faces serious problems and can no longer operate normally, it may be placed into a resolution. This process is used to protect the financial stability of the institution and to manage its closure or restructuring effectively. The act provides a set of powers for appointed authorities to intervene and manage the institution’s assets, which may include transferring ownership of its land and properties.

Key Terms Explained

• Failed Institution: A financial company that has lost the ability to function normally and needs to be restructured or closed.
• Resolution Temporary Holding Entity: A special body appointed to manage and oversee the assets of the failed institution during the resolution process.
• Property Transfer Order: A legal document that facilitates the transfer of property from the failed institution to another entity.
• Supplemental Instrument: Additional documents that may be created to clarify or amend the terms of an original property transfer.

When is SDLT Exempt?

Under section 66A of the Finance Act 2003, certain transfers of land made during the resolution of a failed institution are exempt from SDLT. These exemptions apply in specific scenarios:

• When a property transfer or resolution instrument directs the transfer of land from the failed institution directly to the resolution temporary holding entity.
• When land is transferred to former creditors of the failed institution as part of the resolution process.

When Does the SDLT Exemption Not Apply?

There are specific situations where the SDLT exemption outlined above does not apply. These include:

• Transfer Directly to Third Parties: If the resolution process effectively allows the failed institution’s business, including its land, to be transferred directly to a third-party buyer using a resolution stabilisation power, then SDLT will apply. This scenario typically occurs under section 11 of the Banking Act 2009, where a private sector purchaser intervenes in the process. In this case, the transfer will incur SDLT at the relevant rates.
• Assets Transferred from Temporary Bodies: If the assets, including land, are further transferred from the resolution temporary holding entity or a temporary public body to a third-party purchaser, normal SDLT rates will apply. So, even if the initial transfer was exempt, any onward transfer to a third party is subject to SDLT.

Examples for Clarity

To better illustrate when SDLT applies and does not apply, consider the following examples:

Example 1: SDLT Exemption Applied

A failed bank is put into resolution, and a property transfer order is made. The order stipulates that the bank’s buildings and lands are to be transferred to a resolution temporary holding entity. Since this transfer is directly from the bank to the temporary holding entity, it is eligible for SDLT exemption under the provisions stated in section 66A of the Finance Act 2003.

Example 2: SDLT Not Applicable

Imagine the same failed bank is undergoing a resolution, but this time, it decides to sell its property directly to a private developer. In this instance, the property transfer effectively transfers the bank’s business (including its lands) to the developer using the resolution powers. Here, the transfer will be subject to SDLT at the standard rates, as the transaction was a direct sale rather than a transfer to an exempt temporary holding entity or former creditor.

Example 3: Onward Transfer Subject to SDLT

Continuing from Example 1, suppose after a few months in the temporary holding phase, the resolution temporary holding entity decides to sell the lands acquired from the failed bank to another property development company. Despite the initial transfer being exempt from SDLT, this onward transfer is considered a new transaction that incurs SDLT at the relevant rates.

Conclusion on SDLT Exceptions

Understanding the SDLT exemptions during the resolution of financial institutions is crucial for those involved in the transactions of failed banks or similar entities. Being aware of when exemptions apply helps in planning and making informed financial decisions in accordance with the law.