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HMRC internal manual

Stamp Duty Land Tax Manual

Reliefs and exemptions: Sale and leaseback arrangements

* A transfers or grants to B a major interest in land, (the sale)
* and out of that interest B grants a lease to A (the leaseback).

As this transaction is an exchange, both parts of the transaction are, under the provisions of section 47 Finance Act 2003, chargeable on the market value of the interests transferred. However, where all the conditions of S57A (3) are met, the leaseback element will be exempt. These conditions are:

* the sale transaction must be entered into wholly or partly in consideration of the leaseback
* the interest leased back must be an interest out of the original interest
* the sale leg must be in wholly or partly in consideration of the leaseback, where partly the only other consideration is the payment of money or release from/assumption of a debt
* there is no transfer of rights under section 45 or 45A FA03 involved in the transaction and
* where A and B are both bodies corporate at the effective date they are not members of the same group for the purposes of group relief (paragraph 1 Schedule 7 Finance Act 2003).

Irrespective of whether relief for the leaseback is claimed, the chargeable consideration for each leg should represent the market value of the interest acquired under the respective leg. The reason for this is that the transactions are an exchange to which FA03/S47 and FA03/SCH4/PARA5 apply.

The market value of the sale leg will depend upon whether there was a written agreement, at the time of the sale, for the leaseback leg to be entered into. If there was, the market value of the sale leg should take this encumbrance into account (and value any rent obtainable from the leaseback leg). If there is no such agreement, the market value of the sale leg should be the unencumbered value.

As a consequence of amendments inserted by FA 2004, the scope of the relief has been extended so that it now applies in circumstances where the sale is effected by the grant of a lease followed by an underlease back. The relief is also available in respect of sale and leaseback transactions in residential property. The leaseback element of an equity release or home reversion transaction may benefit from relief if all the qualifying conditions are met.

There is no particular requirement for a leaseback to be in consideration of only one sale, or for one sale to be in consideration of only one leaseback for the relief to apply. It is possible to have one sale with multiple leasebacks and also to have several sales with only one leaseback.

Refer to legislation at:

FA03/S57A

FA04/S296

FA04/SCH39/PARA16