SDLT sub sale relief

Property Tax Bite – SDLT sub-sale relief

In sub-sale transactions, the availability of relief from SDLT for the intermediate purchaser is crucial.

In most commercial sub-sales, the facts should support the relief being available, but as ever there are issues and pitfalls to watch out for. In this Tax Bite we very briefly summarise the key requirements for a “normal” sub-sale where A enters into a contract with B and B then enters into a contract with C, and note a handful of potential pitfalls.

The first important thing to note is that this relief is only available to B in the typical A – B – C sub-sale chain, so we would usually expect C in this chain to pay SDLT (unless they qualified for another relief).

For B to claim the relief:

• B must enter into a contract to acquire the property, that is to be completed by a conveyance;

• B must then enter into a contract with C under which C becomes entitled to call for a conveyance of the land (or part of it, in which case the relief is only available in respect of the part that is sub-sold);

• Neither contract must be substantially performed before the two contracts complete; and

• Performance of the A to B contract must take place “at the same time as and in connection with” the performance of the B to C contract.

It can be seen from these conditions that timing and documenting the steps correctly is very important if B wants to qualify for the relief. Turning then to some key concepts within the above and potential pitfalls we have encountered in practice:

• It is standard practice for there to be two transfers at completion (i.e. A to B and then B to C). This is fine for the relief and equally a single transfer from A to C would work too, but if there are two transfers then they must be immediately sequential. HMRC say that “at the same time as and in connection with” should be interpreted in accordance with normal conveyancing practice, with no event intervening between completion of the first contract and completion of the second contract.

• Substantial performance can be triggered by a number of things, some of which are often overlooked. For example, whilst most people will be familiar with the substantial performance rules around taking possession of the property or paying any rent payment / a substantial part of the consideration, the legislation also says that possession includes receipt of rents and profits or the right to receive them. So, particularly in cases where the land is subject to occupational leases, it needs to be very clear that B (under the A to B contract) and C (under the B to C contract) has no entitlement at all to any rents or profits from the property in advance of completion of the transactions.

• An option is very different from a contract to acquire land for SDLT purposes. It should not be assumed, if A has granted B an option, that B can claim sub-sale relief if B contracts with C to assign the option or to sell the land on to C when the option is exercised. In particular, the assignment of an option is specifically excluded from counting as the “second contract” for sub-sale relief purposes. In a situation where A has granted B an option and B wishes to sub-sell to C, in order to fall squarely within the sub-sale relief rules, then in addition to the basic requirements above:

o It should be clear that when B elects to exercise the option, an A to B contract to transfer the land to B legally comes into existence;

o B must enter into a contract with C, but the B to C contract cannot be in existence before the A to B contract comes into existence. So if for commercial reasons B wishes to enter into a contract with C before exercising its option, then the B to C contract would need to be drafted very carefully.

The relief is also subject to an anti-avoidance rule, as well as minimum consideration rules that potentially impact C and would need to be considered if there is a connection between B and C.

Given the importance of the relief to B on a sub-sale transaction, and the fact that it is all or nothing if any of the conditions are not satisfied, we would always recommend taking advice when looking to rely on the relief.

Posted on 31/01/2022 in Property Tax News, Stamp Duty


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