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HMRC internal manual

Stamp Duty Land Tax Manual

HM Revenue & Customs
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Reliefs and Exemptions: Sale and leaseback arrangements: Example

Example 1

Individual A owns freehold property which he wishes to convert into two commercial units. To enable him to raise finance, he is required to create leasehold interests in the property. Company (B) is set up by A. A transfers the freehold to the company who in turn grants two 999 leases back to A at no premium and a peppercorn rent.

SDLT implications:

* The transaction is an exchange so the chargeable consideration for each transaction will the greater of firstly the market value of the interest acquired and secondly the consideration given for the interest acquired. (In these circumstances, the provisions of S53 would also deem a chargeable consideration for the sale leg to be less than market value, irrespective of the exchange element.)
* Are the conditions of section 57A(2) & (3) met?

If the conditions are met, the leaseback are exempt. The transfer by A to B is treated as the acquisition of the encumbered freehold. Given the facts in this case, the market value of the encumbered freehold is likely to be negligible and there was no consideration given so an SDLT charge would not arise (see SDLTM04020 and example 3 of SDLTM04020a. If the conditions are not met the transfer then the leases back will be chargeable. They will fall under the exchanges rules as the leases appear to have been consideration for the transfer of the freehold. The treatment of the A to B transfer is unchanged