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HMRC internal manual

Stamp Duty Land Tax Manual

Scope: How much is chargeable: Non-cash consideration: Exchanges FA03/SCH4/PARA5

Example 1

A grandmother gives her £1 million home to her grandson, in exchange for his £300,000 flat. The grandson must pay SDLT on £1 million (the market value of the interest acquired - this is greater than the consideration he gave). The grandmother must pay SDLT on the greater of the market value of the interest acquired (£300,000) and the chargeable consideration given.

The consideration she gave was £1 million but this must be apportioned on a just and reasonable basis between the chargeable consideration given for the flat and the element of gift to her grandson. A just and reasonable apportionment results in the chargeable consideration given being £300,000 and a gift of £700,000. So the grandmother pays SDLT on £300,000. There is unlikely to be any element of gift in any transaction which has a commercial flavour.

Example 2

Ahmed and Katrina decide to exchange their homes. Ahmed’s is valued at £375,000, but Katrina’s is valued at £400,000, so Ahmed gives Katrina £25,000 in cash as well. Ahmed pays tax on chargeable consideration of £400,000 since this is both the value of the interest he acquires and the amount of consideration he gives to acquire it.

It is just and reasonable for Katrina to apportion the £400,000 market value of her house (i.e. the value of what she gave) under paragraph 4 as to £375,000 for the property and £25,000 for the cash received. The chargeable consideration is £375,000 for Katrina’s acquisition - this is equal to both the value of the interest she acquired and the amount of apportioned consideration she gave to acquire it.

Example 3:

A developer sells the freehold interest in a block of flats worth £5 million to a company for a nominal cash sum but subject to an obligation for the company to immediately grant the developer 999 year leases (at nominal rent) over each of the flats.

This arrangement is treated similarly as being the acquisition by the purchaser-company of the encumbered freehold. The chargeable consideration is the greater of the market value of the interest acquired and the consideration given. The market value of the interest acquired is, the nominal value of the encumbered freehold. The consideration given to acquire the encumbered freehold is the nominal cash sum. So, there is no SDLT to pay.

The developer would not pay any SDLT for the acquisition of the leases as it would be entitled to relief on the leaseback under the rules for sale and leaseback arrangements.

In this example the freehold is so heavily encumbered that it has only nominal value. In other circumstances where the encumbrance is less, SDLT will be chargeable on the purchaser- company if the value of the encumbered freehold (or the consideration given for it) is high enough.