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HMRC internal manual

Stamp Duty Land Tax Manual

From
HM Revenue & Customs
Updated
, see all updates

Scope: What is chargeable: Transfer of rights: Substantial performance of original contract: Examples

Example 1: Initial contract not substantially performed and assigned

V Ltd enters into a contract to sell land to P Ltd for £100,000. P Ltd pays to V Ltd a deposit of £10,000. This is the original contract.

P Ltd does not take possession of the land and does not pay the balance outstanding of £90,000 to V Ltd. The contract is not therefore substantially performed.

Instead he assigns his rights under that contract to S Ltd for £20,000. The £20,000 paid by S Ltd to P Ltd includes £10,000 in reimbursement of the deposit originally paid. P Ltd has no further obligation to pay the balance of £90,000 to V Ltd.

This assignment is the transfer of rights. On completion S Ltd is entitled to call for a conveyance or transfer from V Ltd.

FA03/S45 provides that FA03/S44 applies as if there were a contract for a land transaction under which S Ltd is the purchaser and this contract is the secondary contract.

The payment by P Ltd to V Ltd of the deposit of £10,000 does not amount to an act of substantial performance and so no charge to stamp duty land tax arises for P Ltd on payment of the deposit.

The conveyance from V Ltd to S Ltd completes both the original and the secondary contracts. However, the completion of the original contract at the same time as and in connection with the completion of the secondary contract is disregarded by virtue of FA03/S45(3) so there is no stamp duty land tax charge on P.

The consideration given by S Ltd under the secondary contract is the sum of what S Ltd gives to P Ltd under FA03/S45(3)(b)(ii)) and to V Ltd under FA03/S45(3)(b)(i).

S Ltd will pay stamp duty land tax under FA03/S45 on

  • the consideration given for the transfer of rights i.e. £20,000 because FA03/S45 (3)(b)(ii) applies and
  • on the amount of consideration outstanding under the original contract i.e. £90,000 because FA03/S45(3)(b)(i) applies

Example 2: Initial contract substantially performed and subsequently assigned

On 1 April 2004 V contracts to sell land to P for £100,000.

P pays V a deposit of £10,000. No charge to stamp duty land tax arises because the contract has not been substantially performed by reference to either the taking possession or the payment of a substantial amount of the consideration tests detailed at SDLTM07850.

On 1 May 2004 P takes possession of the land so the V/P contract is substantially performed.

A charge to stamp duty land tax on P arises on that date on £100,000.

On 1 June 2004 S pays P £20,000 to obtain the rights under the contract and to assume P’s obligation to pay the balance of monies due to V.

P has no further obligation to pay V the balance of £90,000.

S then pays V £90,000 and V conveys the land to S.

S is chargeable to stamp duty land tax on £90,000 plus the £20,000 paid.

The effect is the same as if V had conveyed to P for £100,000 and P had conveyed to S for £110,000.

Example 3: Initial contract not substantially performed prior to Transfer of Rights by sub-sale

V Ltd enters into a contract to sell land to P Ltd for £100,000. P Ltd pays a deposit of £10,000 to V Ltd. This is the original contract.

The payment by P Ltd to V Ltd of the deposit of £10,000 does not amount to an act of substantial performance and so no charge to stamp duty land tax arises for P Ltd on payment of the deposit.

P Ltd neither takes possession of the land nor pays the outstanding balance of £90,000 owing to V Ltd. Therefore the original contract has not been substantially performed.

Instead, P Ltd enters into a sub-sale contract to sell the land to S Ltd for £120,000. The sub-sale by P Ltd is the transfer of rights.

On completion P Ltd requires V Ltd to transfer the land directly to S Ltd.

FA03/S45 provides that FA03/S44 applies as if there were a contract for a land transaction under which S Ltd is the purchaser and this contract is the secondary contract.

The conveyance from V Ltd to S Ltd completes both the original and the secondary contracts, and in addition the original contract is substantially performed by the payment of consideration.

However, the completion or substantial performance of the original contract at the same time as and in connection with the completion of the secondary contract is disregarded by FA03/S45(3) so there is no stamp duty land tax charge on P Ltd

S Ltd will pay stamp duty land tax under FA03/S45 on the £120,000 consideration for the transfer of rights because FA03/S45(3)(b)(ii) will apply.

Unlike the situation described in example 1 above the obligation to pay the outstanding consideration under the original contract has not been assumed by S Ltd but remains with P Ltd.

Therefore FA03/S45(3)(b)(i) does not apply to S Ltd.