SDLT & ATED Update August 2018
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SDLT & ATED Update August 2018
This update comments on the latest developments on the following: • Communications with Stamp Office on SDLT • Shortening of filing and payment window to 14 days from the effective date • What is a “major interest”? • Bare trusts and first time buyer’s relief • Gardens and grounds of a dwelling • When does a property count as “mixed use” subject to the non-residential SDLT rates? • Supreme Court decision in Project Blue
Marc Selby Partner marc.selby@laytons.com +44 (0)20 7842 8040
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SDLT & ATED Update | August 2018
Communications with Stamp Office on SDLT
Filing and Payment Window
A reminder that postal enquiries should no longer be sent
Draft legislation has been published for shortening the time
to City Centre House in Birmingham and should instead be
limit for filing SDLT returns, which is currently 30 days from the
addressed to:
effective date of the transaction, to 14 days from the effective date. The shortened time limit will apply to transactions with
BT Stamp Duty Land Tax
an effective date on or after 1 March 2019. To coincide with
HM Revenue & Customs
this change, the Stamp Office and the VOA have agreed to
BX9 1HD
the following simplifications relating to the information on leases which, currently, must be provided in conjunction with
Payments by cheque should be sent to the following address
SDLT returns:
if enclosed with a paper return: • BT Stamp Duty Land Tax
Schedule 1, requiring information about residential leases to which the property acquired is subject, will no
HM Revenue & Customs
longer be required.
BX9 1LT •
Schedule 2, requiring information about nonresidential
However, where the return is filed electronically but payment is
and mixed use leases to which the property acquired
made by cheque, the payment (enclosing payslip or quoting
is subject, will be amended to reduce the number of
the UTRN in the SDLT 5 certificate) should be sent to:
questions from 9 to 4, and will require only the tenant’s name, property address and the start and end date of
HM Revenue & Customs
the lease.
Direct
BX5 5BD
The above will implement a significant simplification in respect of the information on leases which is currently required when submitting SDLT returns in respect of properties acquired subject to leases or tenancies. Additionally, Form SDLT 4 will be amended so that the question on deferment will ask “have you applied” rather than “have you agreed”, the mineral rights question will be amended to request a “yes” or “no” answer and questions 26 to 37 on leases will be removed.
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SDLT & ATED Update | August 2018
What is a "major interest"
rule in Schedule 16 para 3(2) and (3) FA 2003 is not disapplied
This question was covered in my previous Update. In a recent
child in the above circumstances will not qualify for FTB if the
consultation meeting HMRC have again confirmed their view
parents have owned another property, even if they join the
that for the purpose of the higher rate for additional dwellings
lease on the basis that they will have no beneficial interest in
a “major interest” includes an undivided share. This view is
the property. However, the solution in such a case would be
confirmed in HMRC’s guidance on the higher rate which has
for the lease to be granted solely to the adult child who then
now been incorporated in the SDLT Manual (see paras 09780
immediately assigns the lease into the joint names of the child
and 09785).
and his or her parents (on the basis that the parents will have
for FTB, so that the grant of a lease to parents plus adult
no beneficial interest in the property, but will jointly be party
Bare Trusts and First Time Buyer’s Relief (FTB) It will often be the case that a person seeking to qualify for FTB will only be able to satisfy the affordability tests for
to the mortgage). In that event the conditions for FTB should be satisfied if the child has never owned another property.
Gardens and Grounds of a Dwelling
obtaining a mortgage if one or both of the buyer’s parents
“Residential Property” is defined in section 116(1) FA 2003 to
join with the buyer to jointly acquire the property and are joint
mean:
parties to the mortgage. HMRC have helpfully confirmed that for the purpose of the higher rate for additional dwellings,
" a. a building that is used or suitable for use as a dwelling,
where an individual (who is not a spouse or civil partner of
or is in the process of being constructed or adapted for
another purchaser) is one of the purchasers of a dwelling but will have absolutely no beneficial interest in the property,
such use, and b. land that is or forms part of the garden or grounds of a
they will not be treated as a joint purchaser of the dwelling,
building within (a) (including any building or structure on
provided that this is evidenced in writing (see para 09820
such land), or
SDLT Manual).
c.
an interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land
Does the same principle apply for FTB? The answer will
within paragraph (b)".
depend on how the purchase is effected. If the purchase is of a freehold or an existing lease, the buyer’s parents who
The question of whether land that is sold together with a
join with the buyer should not be treated as “purchasers” if
dwelling forms part of the “grounds” of the dwelling can
the property is acquired upon bare trust solely for the buyer
be a grey and contentious area. In a recent consultation
and on the basis that the parents will have no beneficial
meeting HMRC stated that their firm view is that where land
interest in the property. However there is a potential trap if
which forms part of the garden or grounds of a dwelling
the purchase is effected by way of the grant of a new lease
is sold separately, without the dwelling, the land remains
(which will typically be the case if the buyer is purchasing a
residential so that the residential rates will apply (but without
new flat from a developer). In that event the parents will be
the 3% surcharge if the property sold does not include
treated as joint purchasers with the buyer, even if they will
a dwelling). HMRC’s view is that if garden/grounds are
have no beneficial interest in the property, see para 3(2) and
sold separately from the dwelling, the acquisition by the
(3) of Schedule 16 to FA 2003. HMRC have stated that the
purchaser will be treated as residential property irrespective of
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SDLT & ATED Update | August 2018
whether that part of the garden/grounds have been fenced/
and that the dwelling overall remains in use as a
walled off or otherwise made physically inaccessible to the
dwelling, so that the property is wholly residential
vendor. However, a subsequent sale by the purchaser may
and is not mixed use.
be nonresidential if there is no building on the plot at the effective date of the subsequent sale.
•
However, where part of the dwelling has, for example, been converted into a surgery there may be a credible argument that the property is mixed
When does a property count as “mixed use” subject to the nonresidential SDLT rates?
use. HMRC consider that a building containing some areas used for business may still be used and suitable for use as a dwelling depending on the degree of conversion required to turn the business areas back into residential areas and there
Where residential property is being acquired, and the
would have to be a clear separation between the
property includes land or a building, or part of a building,
residential and nonresidential areas for the property
which has been or is being used for a nonresidential purpose
to be mixed use.
the purchaser will often wish to contend that the property is “mixed use” such that the nonresidential SDLT rates will
•
A further scenario is commercial use of property (other
apply. At a recent consultation meeting HMRC commented
than the dwelling itself ) or land that would otherwise
as follows:
form part of the garden or grounds. The question is whether an identifiable use precludes enjoyment of
•
HMRC will often enquire as to whether the part of the
that part of the grounds. For example, a paddock
property which is claimed to be used for a business
that is not used for anything else remains available
purpose is subject to business rates. HMRC have
for the enjoyment of the dwelling because there is no
commented that this is an indicator which is to be
other identifiable use. On the other hand, a formal
weighed up in the round.
arrangement involving the granting of a lease or licence to graze the land is more likely to prevent the
•
What is the position where a business or trade is carried
owner’s enjoyment of that land. HMRC say that it will
on at or within the grounds of a dwelling? HMRC’s view
be necessary to weigh up the factors in a particular
is that for buildings containing areas used as a dwelling
case to establish whether or not an identifiable use
and areas used for business purposes, a distinction
precludes enjoyment by the occupier of the dwelling.
should be drawn between the scenario where certain
Actual use at the effective date (usually completion)
rooms of a house are used for work purposes (the
overrides past or future use. This is of particular
office at home example) and the scenario where the
relevance for purchasers of country properties, often
house is divided into separate areas which are used
with a farmhouse together with adjoining land. Where
independently for residential and trade purposes (eg a
the land is acquired subject to agricultural tenancies
house part converted into a surgery). Hence:
or grazing licences, these arrangements should be appropriately documented so that evidence of the
•
In situations similar to the “home office” example,
nonresidential use can be provided to HMRC to support
HMRC consider that the rooms used for office work
an SDLT return based on mixed use or nonresidential
remain suitable for use as part of the dwelling
rates.
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SDLT & ATED Update | August 2018
Supreme Court decision in Project Blue
by PBL (the long lease), with the subsale to MAR and the
On 13th June 2018 the Supreme Court published its decision
chargeable consideration being due on the “largest amount”
in which they ruled in favour of HMRC, reversing the Court of
payable for the scheme transactions (ie the £1.25 billion
Appeal’s judgement in favour of Project Blue Limited (PBL).
payable under the long lease granted by MAR to PBL).
The case concerned the purchase by PBL of the Chelsea
The Supreme Court, reversing the Court of Appeal judgment,
Barracks development site from the MoD for £959 million.
held by a majority of 4 to 1 as follows:
lease back to PBL being “scheme transactions”, and with the
The purchase was effected using a Shari’a compliant financing structure, which enabled a Qatari Bank (MAR) to fund the
•
In a series of transactions such as those implemented
purchase and development costs without charging interest
in this case it is necessary to identify “V” (the Vendor)
(which is forbidden under Shari’a law).This was achieved by
and “P” (the Purchaser) and then consider whether
PBL purchasing the site from the MoD and then immediately
there would have been a greater SDLT liability if P had
subselling the site to MAR who, in turn, granted a long lease
acquired the property (or an interest deriving from
of the site back to PBL. Significantly, the long lease back to
it) directly from V instead of by virtue of the actual
PBL was granted subject to payment of a premium of up to
transactions.
£1.25 billion (which was some £291 million more than the price paid by PBL to the MoD), and which was intended to include
•
The identification of “V” and “P” should be made by
the cost of further funding which MAR was to provide for
applying a purposive test. Since section 75A was
PBL’s development of the site plus a finance charge payable
introduced to counter avoidance, it is necessary to
to MAR, although only part of this additional premium was
identify whether the SDLT loss arises as a result of the
ultimately paid by PBL to MAR. The grant of the long lease to
series of transactions (being transactions “involved in
PBL was subject to put and call options under which PBL and
connection with” V’s disposal and P’s acquisition) and
MAR had the right to respectively buy and sell the freehold
to treat as “P” the person who would have incurred the
interest at a price which would effectively settle the sums due
SDLT charge (or a greater charge) if that person had
to MAR under the financing arrangement.
acquired the interest directly from V.
HMRC and PBL agreed that, but for section 75A FA 2003, no SDLT was chargeable because:
•
The Supreme Court disagreed with the Court of Appeal on the following points:
•
The sub-sale to MAR qualified for SDLT subsale relief;
•
The grant of the long lease by MAR to PBL qualified for
finance relief under s.71A the vendor to it must
alternative finance relief.
have been the person to whom it is providing
•
In order for MAR to be entitled to claim alternative
finance, i.e. PBL. The Court of Appeal held that HMRC originally assessed PBL to SDLT of £38.36 million at
MAR was not entitled to alternative finance relief
4% of the consideration of £959 million paid to the MoD, on
under s.71A on the basis that the vendor to it was
the basis that section 75A applied to the transaction but, in
the MoD and not PBL, since the sub-sale by PBL
the course of the appeal to the First Tier Tribunal, increased
to MAR was a disregarded transaction under the
the assessment to £50m on the basis, under section 75A,
sub-sale rules which were in force at the time.
SDLT was to be charged on the “notional transaction” which
Accordingly, MAR should be treated as acquiring
assumed the acquisition of the chargeable interest acquired
the property from MoD (the original vendor) laytons.com | 7
SDLT & ATED Update | August 2018
rather than PBL. The Supreme Court held that this analysis was wrong on the basis that, when determining whether that transaction qualified
•
Commentary •
In order to apply section 75A it is necessary to identify
for alternative finance relief under section 71A FA
“V” and “P” and the Supreme Court has provided
2003, one should apply “real world” concepts,
helpful guidance in this regard. However, this involves
i.e. who, in fact, sold the property to MAR, rather
applying a purposive test to very broadly drafted
than SDLT concepts such as “land transaction”
legislation which itself does not provide explicit
and “chargeable interest”. Accordingly, both the
guidance on how to identify those persons. It is a
acquisition by MAR and the grant of the long lease
matter of concern that during the course of each of
by MAR to PBL qualified for alternative finance relief
the four appeals in the case (from the First Tier Tribunal
under s.71A. According to the Supreme Court this
up to and including the Supreme Court) there were
approach is consistent with the language in the
differing and conflicting judgments by experienced and
alternative finance relief provision in section 71A.
learned judges.
Applying the purposive test referred to above
•
It will in practice be necessary to analyse any complex
the MoD should be treated as “V” (the parties
multi-step transaction involving the acquisition of
were agreed on this point) and PBL should be
property in England in order to establish whether
treated as “P” since it had achieved a tax saving
section 75A applies and, if so, what the SDLT charge
by a combination of sub-sale relief and alternative
would be, noting that the charge must be calculated
finance relief. Accordingly, SDLT was chargeable
on “the largest amount (or aggregate amount)” given
on £1.25 billion, being the sum potentially payable
or received by way of consideration for the scheme
by PBL to MAR under the long lease, since that
transactions.
was the “largest amount” payable for a scheme transaction. However, PBL was entitled to claim
•
The potential application of section 75A to complex
a refund of tax overpaid to the extent that the
transactions involving an acquisition of property in
amount paid by it to MAR was ultimately less than
England will continue to cause uncertainty, especially
that amount.
since it is HMRC’s policy not to provide clearances as to whether that provision will apply to a proposed
•
An avoidance motive or purpose was not necessary for
transaction. The detailed legislation which enabled
section 75A to apply. In effect, the rules in s.75A should
PBL and MAR to acquire a development site for
be applied mechanically, regardless of the intention or
substantial consideration on the basis that a charge to
motives of the parties to the transaction.
SDLT was avoided by a combination of sub-sale relief and alternative finance relief has been substantially amended. In particular, the SDLT sub-sale rules which applied in the Project Blue transaction have been replaced by a complex set of rules which would deny sub-sale relief where the sub-sale is part of a tax avoidance arrangement. I therefore question whether it is necessary for section 75A to be retained.
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SDLT & ATED Update | August 2018
•
It is notable that the legislation for land and buildings transaction tax for transactions in Scotland and for land transaction tax for transactions in Wales each contains a general anti-avoidance provision which is triggered only where obtaining a tax advantage is the main purpose, or one of the main purposes, of the taxpayer entering into the arrangement. This clearly is preferable to section 75A for transactions in England which could apply to bona fide commercial transactions where there is no avoidance motive or purpose.
•
It is important to note that section 75A is subject to limitations. For example: •
section 75A can only apply where, as a consequence of implementing the actual transactions, the SDLT charge is less than it would be if the transaction were effected by a direct “V” to “P” transaction
•
section 75A, if it applies, can only adjust the amount of the chargeable consideration. It cannot change the status of the property being acquired, eg. from residential to non-residential (or vice versa) or the rate of SDLT chargeable.
•
There are at least two further section 75A cases that are being appealed to the First Tier Tax Tribunal, one of which is understood to have been part-heard. The decisions in these cases are awaited with interest.
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SDLT & ATED Update | August 2018
Tax We recognise that the tax-planning environment has changed radically over recent years and that there is now far greater statutory regulation and control over perceived, as well as actual, tax avoidance. Tax advisers must now understand and advise on increasingly complex anti-avoidance rules, including the new rules which allow the UK tax authority to demand up-front payment of disputed tax where they are challenging a scheme. We strive to achieve what is practical and possible and draw attention to the real risks.
Our Team John Gavan
Michael Barrington
Partner john.gavan@laytons.com +44 (0)161 214 1653
Solicitor michael.barrington@laytons.com +44 (0)20 7842 8086
Marc Selby
Cameron Sunter
Partner marc.selby@laytons.com +44 (0)20 7842 8040
Partner cameron.sunter@laytons.com +44 (0)20 7842 8036
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