SDLTM09400 - Example 3 – Distribution by unit trust scheme

(This example was introduced on 14 May 2021)

Unitholder 1 Limited and Unitholder 2 Limited are both foreign companies that are part of the same group for SDLT purposes and the only unitholders of the Mansion Unit Trust, which is a unit trust scheme.

Unitholder 1 Limited holds 99% of the units in Mansion Unit Trust and Unitholder 2 Limited holds the other 1% of units.

Mansion Unit Trust only holds one property, worth £20 million, which is debt free and the unit trust scheme has no other debts or loans outstanding at this time.

Transactions
  • Unitholder 1 Limited sell all its units to Estate 1 Limited and Unitholder 2 Limited sells all its units to Estate 2 Limited.
  • Estate 1 Limited and Estate 2 Limited are both UK incorporated companies and are in the same group as Unitholder 1 Limited and Unitholder 2 Limited.
  • Once the units have been sold, the property held by the unit trust scheme is distributed, for nil consideration, to the unitholders in respect of their unitholding.
  • Consequently, Estate 1 Limited acquires a 99% interest in the property and Estate 2 Limited acquires a 1% interest in the property.
  • Mansion Unit Trust is then liquidated
  • Immediately after, Estate 1 Limited purchases the 1% interest in the property that Estate 2 Limited held for consideration equal to 1% of the value of the property.
Analysis
SDLT on actual land transactions
  • As there is no consideration for the distribution there is no SDLT to pay.
  • On the transfer of the 1% interest in the property from Estate 2 Limited to Estate 1 Limited SDLT is potentially due on the consideration (or, if higher, market value of the property interest). However, as the two are SDLT grouped, a claim for group relief is made and no SDLT is payable.
SDLT under s75A

For section 75A, V will be Mansion Unit Trust as it originally held the property interest which has been disposed of and P will be Estate 1 Limited as it ultimately acquired the whole of the property interest.

The following section 75A analysis applies:

  • The first two transactions in units are ignored for the purposes of section 75A, because of section 75C(1).
  • The scheme transactions would include:
  • The distribution of the property to Estate 1 Limited and Estate 2 Limited
  • The transfer of the 1% interest from Estate 2 Limited to Estate 1 Limited
  • The notional land transaction is P (Estate 1 Limited) acquiring the whole of the property interest from V (Mansion Unit Trust).
  • The notional land transaction is able to retain the character of the transfer. That means it retains the characteristic of a distribution (as mentioned at SDLTM09290) and so Section 54 can apply to remove any market value charge.
  • The chargeable consideration for the notional land transaction will be the amount given by Estate 1 Ltd for the 1% property interest it acquired from Estate 2 (section 75A(5)). While Estate 1 Ltd claimed group relief on the purchase of the 1% interest from Estate 2 Limited, this is not possible for the notional land transaction as the notional land transaction is between V, Mansion Unit Trust, and P, Estate 1 Limited. As V is a unit trust scheme it is not a company for the purposes of group relief, as provided for by section 101 FA2003, group relief cannot be claimed on this element under s75A.
  • When considering the chargeable consideration on the notional transaction, the largest amount given for the scheme transactions is the amount given by Estate 1 Limited to Estate 2 Limited for their 1% interest in the property.

The comparison test of Section 75A(1)(c) is met as there is more SDLT to pay on the notional land transaction than on the actual land transactions. This amount is equal to 1% of the value of the property.