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HMRC internal manual

Stamp Duty Land Tax Manual

From
HM Revenue & Customs
Updated
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Reliefs and Exemptions: Sale and leaseback arrangements: 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 leases back to A at no premium and a peppercorn rent.

SDLT implications:

* The transaction is an exchange so we need to establish the market values of both legs. (In these circumstances, the provisions of S53 would also deem a market value consideration to the sale leg irrespective of the exchange element.)
* Are the conditions of section 57A(2) & (3) met?

If the conditions are met, the leaseback is exempt and the transfer by A to B will be charged on the market value of the interest transferred under section 47. No account will be taken of any consideration actually passing in these circumstances, but the fact that the interest is encumbered by the leases(s) back is when calculating the market value.

If the conditions are not met the transfer by A to B will be charged on the market value of the interest transferred (section 47 or 53) and the leaseback will be charged on either the market value as an exchange or on the terms of the lease depending on which qualifying condition was not met.