Section 195 Schedule 37: Stamp Duty Land Tax: Pre-Completion Transactions
Summary
1.Section 195 introduces Schedule 37 which retains relief for intermediate purchasers where rights under a land transaction are transferred by way of: (i) an assignment of rights; and/or (ii) qualifying subsale. It charges the end purchaser with Stamp Duty Land Tax (SDLT). It specifies the types of transactions which qualify for relief and also clarifies the legislation to protect against avoidance schemes which seek to circumvent the charge to SDLT.
Details of the Schedule
2.Paragraphs 1 and 2 amend Part 4 of Finance Act 2003 (FA 2003) by amending the transfer of rights rules applying to section 45 FA 2003. The new section 45 introduces a new Schedule 2A to the FA 2003 which contains the substantive provisions.
3.Paragraph 3 inserts a new Schedule 2A which contains provisions about transactions that are entered into before completion of contract. It replaces the term “transfer of rights” with the term “pre-completion transaction” (see Schedule 2A paragraph 1(2)).
Meaning of “pre-completion transactions” and associated terms
4.Schedule 2A Paragraph 1 sets out that Schedule 2A applies where: (i) there is an acquisition of a chargeable interest that is to be completed by a conveyance; and (ii) there is a pre-completion transaction (see paragraph 1(2)).
5.Sub-paragraphs (2) – (8) provide the meaning of a “pre-completion transaction” and related terms such as “the original purchaser”, “the original contract”, “part of the subject matter of the original contract” and “the transferee”. It also sets out certain transactions that are not pre-completion transactions and where Schedule 2A does not apply.
6.Sub-paragraph (5) allows a novation or any other transaction that discharges the original contract to be a pre-completion transaction for the purposes of Schedule 2A.
7.Sub-paragraph (6) provides that where there is a pre-completion transaction that is an assignment of rights (see paragraph 2(1)) that cannot be an “original contract” as set out in paragraph 1(1)(a)).
Other key expressions in relation to pre-completion transactions
8.Schedule 2A Paragraph 2 sets out other key expressions for the purposes of Schedule 2A.
9.Schedule 2A Paragraph 3 provides that entering into a pre-completion transaction does not in itself incur a charge to SDLT. The operation of section 44 FA 2003 and the remaining paragraphs of Schedule 2A still, however, need to be applied where there is a pre-completion transaction.
Assignments of rights: application of rules about consideration and completion
10.Schedule 2A Paragraph 4 deals with the treatment of the transferee in cases where there is an assignment of rights and sets out what is meant by substantial performance by the transferee or anyone connected with the transferee.
11.Sub-paragraph (1) provides that the provisions of paragraph 4 apply if the pre-completion transaction is an assignment of rights.
12.Sub-paragraph (2) provides that where the original contract is completed by a conveyance to the transferee, that conveyance is taken to effect the completion of the original contract and the provisions of section 44(10) FA 2003 are disregarded.
13.Sub-paragraph (3) provides for the amount of chargeable consideration for the transferee’s acquisition where either: (i) sub-paragraph (3)(a) (conveyance of the subject-matter to the transferee); or (ii) sub-paragraph (3)(b) (substantial performance) applies. Sub-paragraph (5) provides that the consideration includes any amount given by the transferee (or a connected person in accordance with the provisions in paragraph 4(6)) whether in acquiring the relevant interest in land or for the assignment of rights (see paragraph 4(9))
14.Sub-paragraph (7) sets out the circumstances in which the transferee is to be regarded as having substantially performed the original contract.
15.Sub-paragraph (8) provides that section 44(6) and 44(7) FA 2003 (meaning of “possession” and “substantial amount of consideration” in relation to substantial performance) have the same meaning for the purposes of sub-paragraph (7).
16.Sub-paragraph (9) sets out what is meant by “consideration” for the purposes of paragraph 4(5). It includes any consideration: (i) for the acquisition of the subject-matter of the land transaction; (ii) any consideration for the acquisition of the subject matter the original contract; and (ii) any consideration for entering into or for the transferee’s acquisition of the rights to which that contract relates.
Assignment of rights: transferor deemed to make a separate acquisition
17.Schedule 2A Paragraph 5 deems the transferor as making a separate acquisition (a “notional land transaction”) where there is an assignment of rights.
18.Sub-paragraph (1) provides that where there is an assignment of rights and the original contract is either: (i) substantially performed by the transferee; or (ii) completed by conveyance to the transferee, the effective date of that land transaction is deemed to be the effective date of the notional land transaction and the original purchaser is the deemed purchaser under that notional land transaction.
19.Sub-paragraph (2) sets out that where there are preceding assignments of rights (an additional land transaction “associated with” the assignments of rights) prior to substantial performance or completion by conveyance of the original contract (an “implemented assignment of rights”) there is deemed to be an “additional land transaction” for each such assignment of rights other than the first (which is the subject-matter of the notional land transaction) with a deemed amount of chargeable consideration for each such transaction.
20.Sub-paragraph (3) provides that Schedule 4 FA 2003 applies for determining the chargeable consideration for a notional land transaction (which does not form part of a chain of transactions that are pre-completion transactions) provided that the chargeable consideration is: (i) the total consideration given under the original contract by the transferee (or anyone connected with them) (Amount A – see sub-paragraph A5(a) and (c)); and (ii) the purchaser (or anyone connected with them) under the notional land transaction (Amount B - see sub-paragraph B5(a) and (b)).
21.Sub-paragraph (4) provides that Schedule 4 FA 2003 also applies for determining the chargeable consideration where there are a series of notional land transactions (additional land transactions) provided that the chargeable consideration is: (i) the consideration given under the original contract by the transferee (or anyone connected with them), as well as any consideration given by any transferee (or anyone connected with them) in any prior completion transaction in that series (Amount A - see sub-paragraph A5(a), (b) and (c)); (ii) the purchaser (or anyone connected with them) under any additional land transaction (Amount B - see sub-paragraph B5(a) and (b)); and (iii) any consideration given in any preceding assignment of rights (see sub-paragraph (6)) by the purchaser under that transaction (or anyone connected with them) (Amount C - see sub-paragraph C5 (a) and (b)).
22.Sub-paragraph (5) sets out the rules for calculating the consideration for the notional land transaction/any additional land transactions in a series of pre-completion transactions and set outs out what is meant by Amount A, B and C in paragraph 5(3) and 5(4).
23.Sub-paragraph (6) sets out the meaning of “preceding assignment of rights” for the purposes of sub-paragraph (5).
24.Sub-paragraph (7) provides the meaning of the term “related assignment of rights” for the purposes of sub-paragraph (2).
Effect of rescission, annulment etc of the original contract on SDLT charged on a notional land transaction under paragraph 5(1)
25.Schedule 2A Paragraph 6 sets out the SDLT position where there is a notional land transaction as a result of the original contract being substantially performed and then the original contract is subsequently rescinded or annulled (in whole or in part). The transferee’s position is covered by the normal provisions in section 44 FA 2003 but paragraph 6 is required to allow the transferor to claim back an appropriate amount of SDLT.
26.Sub-paragraphs (2) and (3) provide that where (to any extent) the original contract is rescinded or not carried into effect for any other reason, any SDLT paid on a related notional land transaction or additional land transaction has to be repaid to an appropriate extent by HMRC. Any repayment must be claimed through an amendment to the land transaction return.
Assignments of rights of a part of the subject-matter of the original contract
27.Schedule 2A Paragraph 7 sets out the position in relation to assignments of rights of part of the subject matter of the original contract.
Assignments of rights: identity of “the vendor”
28.Schedule 2A Paragraph 8 sets out the provisions regarding the identity of the vendor where there is an assignment of rights (see paragraph 2(1)) and: (i) the subject matter of the original contract is conveyed to the transferee; or (ii) there is substantial performance of the original contract.
29.Sub-paragraph (3) provides the general rule that references to the vendor where there is an assignment of rights will be read as the vendor under the original contract.
30.Sub-paragraph (4) provides that references to the vendor where the original contract was substantially performed before the transferee was entitled to call for a conveyance should be read as the purchaser under the original contract when that contract was substantially performed.
31.Sub-paragraph (5) sets out that in certain specified provisions references to the vendor will be read as including: (i) the vendor under the original contract; and (ii) the transferor under any relevant assignment of rights (see sub-paragraph (9)).
32.Sub-paragraph (6) provides the list of the specified provisions where sub-paragraph (5) applies.
33.Sub-paragraph (7) provides the definition of “relevant land transactions” for the purposes of paragraph 8. These are land transactions that are effected by a conveyance to the transferee or substantially performed by that transferee or a notional land transaction within paragraph 5(1)(b) or any additional land transaction within paragraph 5(2).
34.Sub-paragraph (8) provides that for the purposes of ascertaining whether or not the linked transactions rules in section 108(1) FA 2003 apply, references to the vendor will be read as the vendor under the original contract or the transferor under any relevant assignment of rights.
35.Sub-paragraph (9) provides a definition of “relevant assignments of rights” for the purposes of paragraph 8.
Free-standing transfers: application of rules about consideration and substantial performance
36.Schedule 2A Paragraph 9 deals with the treatment of the transferee in cases where the pre-completion transaction is a free-standing transfer (as defined in paragraph 2(2)).
37.Sub-paragraph (2) provides that the consideration for any transaction effecting the acquisition of the subject-matter of the free-standing transfer shall include any consideration given for that free-standing transfer.
38.Sub-paragraph (3) provides that any acquisition under sub-paragraph (2) includes any acquisition deemed to take place as a result of substantial performance of a contract without completion (under section 44 (4) FA 2003).
39.Sub-paragraph (4) provides that where the transferee (or its assignee) takes any action that falls within section 44(5) FA 2003 (substantial performance) that is deemed to effect the substantial performance of the original contract.
40.Sub-paragraph (5) sets out the position where there are successive free-standing transfers under paragraph 9. In this case, each successive free-standing transfer is treated as a separate contract to which section 44 FA 2003 applies and sub-paragraph (4) applies with regard to substantial performance for each such contract.
41.Sub-paragraph (6) provides that references to the transferee (or its assignee) in relation to any action taken by that person in accordance with sub-paragraph (4) include anyone connected with that person.
42.Sub-paragraph (7) provides that references) to the transferee’s assignee in this paragraph will be read as a person who is entitled to exercise rights under the free-standing transfer as a result of a transaction that is an assignment of rights, for example, in a mixture or series of pre-completion transactions that includes both assignments of rights and free-standing transfers.
Free-standing transfers and pre-completion transactions where there is mixture of both assignments of rights and free-standing transfers: identity of “the vendor”
43.Schedule 2A Paragraph 10 sets out various provisions regarding the identity of the vendor in free-standing transfers and, as the case may be, where there is a mixture of free-standing transfers and assignments of rights.
44.Sub-paragraph (2) provides that references in paragraph 10 to “the relevant land transaction” should be read as the last free-standing transfer (in any chain of pre-completion transactions or otherwise) as set out in paragraph 9(2) or an assignment of rights which follows a free standing transfer and there is: (i) a conveyance to the transferee of the subject matter to which that assignment of rights relates; or (ii) substantial performance by the transferee.
45.Sub-paragraph (3) provides that references in paragraph 10 to “the specified transaction” should be read as the last free-standing transfer (in any chain of pre-completion transactions or otherwise) as set out in paragraph 9(2) or the original contract which is either conveyed to or substantially performed by the transferee.
46.Sub-paragraph (4) provides the general rule that references to the vendor in the relevant land transaction (see paragraph 10(2)) will be read as the vendor or transferor under the “first appropriate transaction” which (subject to the provisions of paragraph 11) is the original contract (see paragraph 11(1)).
47.Sub-paragraph (5) sets out that in certain specified provisions references to the vendor in a free-standing transfer will be read as: (i) the vendor under the original contract; and (ii) each person who is transferor under any relevant pre-completion transaction (see sub-paragraph (8)).
48.Sub-paragraph (6) provides the list of the specified provisions where sub-paragraph (5) applies.
49.Sub-paragraph (7) provides that for the purposes of ascertaining whether or not the linked transactions rules in section 108(1) FA 2003 apply, references to “the vendor” will be read as the vendor under the original contract or the transferor under any relevant pre-completion transaction.
50.Sub-paragraph (8) provides a definition of “relevant pre-completion transaction” for the purposes of paragraph 10.
Other key expressions for the purposes of paragraph 10
51.Schedule 2A Paragraph 11 sets out the meaning of certain expressions used in paragraph 10.
52.Sub-paragraph (1) sets out that, subject to other provisions in paragraph 11, “the first appropriate transaction” in paragraph 10 is the original contract.
53.Sub-paragraph (2) provides that where the original contract is not performed as the same time, and in connection with, the performance of the specified transaction (see paragraph 10(3)), “the first appropriate transaction” is the pre-completion transaction in relation to that original contract, provided that pre-completion transaction meets the conditions set out in sub-paragraph (3).
54.Sub-paragraph (3) sets out the conditions in order for the pre-completion transaction to fall within the definition of “the first appropriate transaction”.
55.Sub-paragraph (4) sets out the meaning of “performed” for the purposes of paragraph 11. In relation to a contract for a land transaction, it is treated as “performed” on the earlier of: (i) substantial performance; or (ii) completion. In relation to a free-standing transfer, it is treated as “performed” when the subject-matter of that free-standing transfer is acquired.
56.Sub-paragraph (5) provides that where there is a series of two or more contracts the original contract is the first contract in the series and the specified transaction is the last pre-completion transaction in the series. Sub-paragraph (6) provides that the specified transaction is the last pre-completion transaction before the transferee acquires the subject-matter of the contract.
Minimum consideration rule
57.Schedule 2A Paragraph 12 provides for a minimum consideration rule for pre-completion transactions (both assignments of rights and free-standing transfers) where there is a relevant connection between the parties (see paragraph 12(3)).
58.Sub-paragraph (2) provides that where there is a relevant connection between the parties in a pre-completion transaction, the amount of consideration for the ultimate or final acquisition is: (i) the consideration it would normally be in the absence of paragraph 12; or (ii) if higher, the first minimum amount (see paragraph 13); or (iii) if higher than both amounts in (i) and (ii) above, the second minimum amount (see paragraph 14).
59.Sub-paragraph (3) sets out the meaning of “relevant connection between the parties”. It provides that there is a “relevant connection between the parties” if: (i) the transferee and transferor in relation to a pre-completion transaction are connected with each other (see paragraph 20) or not acting at arm’s length; or (ii) sub-paragraph 4 applies.
60.Sub-paragraph (4) sets out how the relevant connection between the parties test should be applied where there are a series of pre-completion transactions. It applies if the transferor in a pre-completion transaction that precedes the implemented transaction (see paragraph 12(3)) is connected with or not acting at arm’s length to the transferee under that implemented transaction.
61.Sub-paragraph (5) sets out that references to the “original contract” in paragraph 13 and paragraph 14 where the implemented transaction forms part of a series of contracts with common subject-matter shall be read as a reference to the first contract in that series.
Calculation of minimum amounts for the purposes of the minimum consideration rule
62.Schedule 2A Paragraph 13 sets out the meaning of first minimum amount and how this is calculated for the purposes of paragraph 12.
63.Sub-paragraph (1) provides that the “first minimum amount” (see paragraph 12(2)(b)) is in respect of a chargeable interest that is acquired under a land transaction (see paragraph 4(4) and 9(2)): (i) the amount of consideration for the subject matter of the original contract (if the whole of the subject matter of that contract is acquired); or (ii) the amount of consideration just and reasonably apportioned (if a part of the subject-matter of the original contract is acquired).
64.Sub-paragraph (2) provides that if certain conditions are met (see sub-paragraph 3) the first minimum amount is total of any consideration required to be given by the transferor (the first T – see sub-paragraph (4)) under the terms of the contract for the first T’s acquisition (see sub-paragraph (5)) of the subject matter of that contract and, if not included, any consideration required to be given by the first T under any pre-completion transaction where the first T is a transferee.
65.Sub-paragraph (3) sets out the conditions that need to be met for the first minimum amount to apply.
66.Sub-paragraph (4) sets out the meaning of “the first T” for purposes of paragraph 13.
67.Sub-paragraph (5) provides a definition of “the transfer to the first T” for the purposes of paragraph 13(2). It is the pre-completion transaction where the first T is a transferee or the original contract (if T (see Condition B in sub-paragraph (3)) is the original purchaser).
68.Sub-paragraph (6) provides the meaning of “original contract” and “tax advantage” for the purposes of this paragraph.
Calculation of the second minimum amount for the purposes of the minimum consideration rule
69.Schedule 2A Paragraph 14 sets out how the second minimum amount is calculated for the purposes of paragraph 12. It is the total amount of consideration given by relevant parties (see paragraph 14(3)).
70.Sub-paragraph (2) sets out the formula for ascertaining the net amount of consideration given by a relevant party. This sub-paragraph and the provisions of sub-paragraph (4) require that the calculation is carried out for each party.
71.Sub-paragraph (3) provides that (subject to paragraph 14(4)) the relevant parties for the purposes of the calculation of the second minimum amount are: (i) the original purchaser; and (ii) the transferee including, where there are successive pre-completion transactions, all transferees in the chain of transactions.
72.Sub-paragraph (4) provides that where a pre-completion transaction (an “implemented transaction”) is part of a chain of pre-completion transactions in relation to an original contract (see paragraph 12(5)), only the following are relevant parties: (i) a person who is a transferee or a transferor under the implemented transaction; (ii) a person who is a transferor in a preceding transaction (see sub-paragraph (7)) prior to an implemented transaction where that transferor is connected with or not acting at arm’s length to the transferee under the implemented transaction; (iii) the transferee under a pre-completion, if the transferor in (ii) above is a relevant party.
73.Sub-paragraph (5) provides that any amounts given by connected parties and parties not acting at arm’s length are treated as given by the relevant party for the purposes of the formula in paragraph 14(2).
74.Sub-paragraph (6) provides that amounts to be given in respect of an implemented transaction where that transaction relates to a part of the subject-matter of the original contract, those amounts are to be adjusted and determined on a just and reasonable basis. This includes any preceding transactions of a part prior to any implemented transaction.
75.Sub-paragraph (7) sets out the meaning of the “the original contract” and “preceding transaction” for the purposes of paragraph 14.
Relief for the original purchaser in assignment of rights cases
76.Schedule 2A Paragraph 15 sets out the conditions for relief from SDLT where there is an assignment of rights.
77.Sub-paragraph (1) provides that relief is available if: (i) there is an assignment of rights and a person is liable to SLDT in respect of the notional land transaction (see paragraph 5(1)) or any additional land transaction (see paragraph 5(2)); and (ii) the original contract had not been substantially performed when the assignment of rights was entered into.
78.Sub-paragraph (2) sets out that no SDLT is chargeable on the notional land transaction or additional land transaction if relief is claimed under this paragraph.
79.Sub-paragraph (3) provides that relief is not available if the land transaction under paragraph 4 is exempt from charge by reason of the alternative property finance rules.
80.Sub-paragraph (4) sets out that any relief must be claimed by the submission of a land transaction return.
Relief for the original purchaser in qualifying subsale cases
81.Schedule 2A Paragraph 16 sets out the conditions for relief from SDLT where there is a qualifying subsale.
82.Sub-paragraph (1) provides that relief from SDLT is available where the pre-completion transaction is: (i) a qualifying subsale (see sub-paragraph (8)); (ii) the original purchaser would (apart from this paragraph) be liable to SDLT on the land transaction effected by completion or substantial performance of the original contract; (iii) the qualifying subsale is performed at the same time as and in connection with the original contract; and (iv) relief is claimed in a land transaction return in accordance with sub-paragraph (6)
83.Sub-paragraph (2) provides that where the qualifying subsale is for the whole of the subject-matter of the original contract, no liability to SDLT arises on that transaction.
84.Sub-paragraph (3) provides that where the qualifying subsale relates to part of the subject-matter of the original contract then full relief is not available but the amount of the consideration is reduced accordingly.
85.Sub-paragraph (4) sets out that there may be more than one reduction in SDLT for qualifying subsales of a part which relate to the same original contract.
86.Sub-paragraph (5) provides that relief from SDLT under this paragraph is not available if: (i) the original contract was substantially performed before the qualifying subsale was entered into; or (ii) the transaction effected by the qualifying subsale is exempt from charge by virtue of the alternative property finance rules.
87.Sub-paragraph (6) provides that relief under this paragraph must be claimed by the submission of a land transaction return.
88.Sub-paragraph (7) sets out the meaning of “performed” in respect of a contract for land transaction under this paragraph. It is the earlier of substantial performance or completion.
89.Sub-paragraph (8) defines what is meant by a “qualifying subsale”.
Relief for successive subsales
90.Schedule 2A Paragraph 17 provides how the conditions for relief set out in paragraph 16 apply to situations where there are successive subsales.
Tax avoidance arrangements
91.Schedule 2A Paragraph 18 denies relief if a pre-completion transaction forms part of tax avoidance arrangements; this requires consideration of the purpose or purposes of the original purchaser.
92.Sub-paragraph (1) denies relief under paragraph 15 and paragraph 16 if the assignment of rights and/or the qualifying subsale (as the case may be) forms part of any tax avoidance arrangements.
93.Sub-paragraph (2) sets out the meaning of “tax avoidance arrangements”.
94.Sub-paragraph (3) sets out the meaning of “tax advantage”.
95.Sub-paragraph (4) sets out the meaning of “arrangements”.
96.Sub-paragraph (5) provides that (for the avoidance of doubt) nothing in paragraphs 12, 13 and 14 (the minimum consideration rule and the calculation of the first minimum amount and the second minimum amount) affects the breadth of sections 75A -75C FA 2003 (anti-avoidance rules).
Exclusion of transactions from duty to make returns etc
97.Schedule 2A Paragraph 19 provides a power for the Treasury to make regulations to: (i) remove the requirement to deliver a land transaction return (where relief is being claimed) in certain cases (for both assignments of rights and free-standing transfers); and (ii) alter the condition that a relief has to be claimed for certain types of transaction/provide that the deeming provision for a notional land transaction (see paragraph 5) does not apply in certain cases. This power is subject to section 114 FA 2003.
Definition of connected persons
98.Schedule 2A Paragraph 20 provides that the definition of connected persons in section 1122 of CTA 2010 applies to the Schedule.
Interpretation of Schedule
99.Schedule 2A Paragraph 21(1) and (2) set out a list of key expressions used in the Schedule and where those expressions are defined.
100.Sub-paragraph (3) provides that there is only one original purchaser where a chargeable interest is acquired but cases involving joint purchasers are disregarded.
101.Paragraphs 4 -10 are a series of consequential amendments to FA 2003 as a result of the insertion of Schedule 2A.
102.Paragraph 11 provides that the amendments made in Schedule 2A apply to transfers of rights (within section 45 FA 2003) and pre-completion transactions (which replaces the term “transfers of rights”) entered into on or after Royal Assent to Finance Act 2013.
Background
103.The Government announced in Budget 2012 that it would consult on reforming section 45 FA 2003. A consultation document was published on 17 July and closed on 9 October 2012. A consultation response document was published on 11 December alongside the legislation in the draft Finance Act 2013. The second consultation on the draft legislation closed on 6 February 2013. Revised legislation was included in FB 2013, published on 28 March 2013.
104.The current law achieves two broad outcomes where a transfer of rights takes place. The transferee is charged SDLT on a single land transaction which is an amalgam of the transfer of rights and the ultimate acquisition of the land. Any acquisition by the transferor is disregarded if it is completed at the same time and in connection with the acquisition by the transferee.
105.The Schedule broadly produces the same outcome as the current rules, but is more robust against attempted avoidance.
106.The amendments give relief to assignments of rights and qualifying subsales. They set out what is meant by a “pre-completion transaction” and how assignments of rights and free-standing transfers (all other transactions that do not fall within the definition of an assignment of rights) are to be treated. In assignments of rights and qualifying subsales, the transferor will be regarded as making an acquisition of a chargeable interest for SDLT purposes and will need to make a land transaction return in order to be able to claim relief. The transferor will be able to make a claim for full relief in certain circumstances. The relief will be subject to an avoidance purpose test.
107.The position for the transferee will remain broadly the same with the exception of the introduction of an anti-avoidance minimum consideration rule for connected parties or non-arm’s length transactions.
