Read the original guidance here:
HMRC SDLT: Guide on Tax Returns After Substantial Performance of Property Sale Agreement

Completion Following Substantial Performance of an Agreement for Sale

When a sale agreement for a freehold interest or the assignment of a lease is almost complete, it’s important to understand the next steps. This article explains the process after the substantial performance of an agreement, especially when it comes to tax returns.

What is Substantial Performance?

Substantial performance occurs when a sale agreement, like selling a freehold property or assigning a lease, has progressed significantly enough that the key components of the deal are fulfilled. At this stage, many of the obligations in the agreement have been met, but the final touches or completion might still be pending.

Why is a Further Return Required?

Once substantial performance of the agreement is achieved, a further tax return may be required upon the actual completion of the sale. This further return is necessary if any changes took place between the substantial performance and actual completion that would affect the tax amount that needs to be paid. Here are some key points to understand:

• Changes to Agreement: If the sale price changes or any other significant conditions are adjusted during this period, the tax owed may also change.
• Calculating Tax: You must recalculate the tax liability based on any changes that have occurred.

How to Submit a Further Return

To submit a further return following substantial performance, you will need to send a letter to the Stamp Office. The letter should include specific information to ensure everything is processed correctly. Below are the details to include:

• UTRN of Original Return: This is the Unique Taxpayer Reference Number related to your initial tax return, if applicable.
• New Calculation Details: Provide a clear breakdown of the new tax calculation reflecting any changes.
• Payment of Additional Tax: If the new calculation indicates that more tax is owed, include payment for the extra amount.
• Claim for Refund: If your recalculation shows you have overpaid tax, you can claim it back. Include details of the refund you are claiming.

Interest on Unpaid Tax

If there is tax that remains unpaid more than thirty days after the completion of the sale, interest will be charged on the owed amount. Here’s what to keep in mind regarding interest:

• Interest Period: The interest begins accumulating after the thirty-day period following completion.
• Repayment with Interest: If you are due a tax repayment, it will include interest calculated from the date HMRC received your original payment.

Example Scenario

To illustrate the process, let’s consider an example:

• You enter into an agreement to sell your property for £300,000. After substantial performance, you submit your initial tax return based on this value.
• During the final stages leading to actual completion, the agreed sale price changes to £320,000.
• Since the tax owed is based on the new sale price, you must prepare a further return to reflect this adjustment.
• Your further return will include your UTRN from the original return, your new calculation indicating additional tax due on the £320,000 sale price, and any necessary payments.

Where to Send Your Further Return

When you’re ready to send your letter, make sure you address it to the correct Stamp Office. Double-check the details you include to prevent any delays or issues with processing.

Key Points to Remember

• Substantial performance triggers the potential need for a further tax return.
• Any changes to the sale agreement before actual completion can affect your tax obligations.
• Your further return must provide specific details, including the original UTRN, new calculations, additional payments, or requests for refunds.
• Interest will accrue on unpaid tax after thirty days post-completion, and any tax refunds will also include interest.