SDLT & ATED Update

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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