Example 1, Simple assignments of rights
This is an example of how the rules apply to an assignment of rights.
- A enters into a sale and purchase agreement with B for some land with a consideration of £1 million payable on completion.
- B assigns its rights under the contract to C for a payment of £100,000.
- C completes the acquisition and pays A £1 million.
The intended outcome is that B should have to make a land transaction return for a transaction with consideration of £1 million but can include a claim for full relief. C should have to make a land transaction return with consideration of £1.1 million.
The transactions fall within Schedule 2A in the following way:
- The transactions fall within the definition of a pre-completion transaction in paragraphs 1(1) and (2).
- The pre-completion transaction is an ‘assignment of rights’ that falls within paragraph 2(1).
- Under paragraph 1(1), 1(2) and 2(3): the original contract is the contract between A and B, the original purchaser is B, the transferee is C and the transferor is B.
- The transferee is not regarded as entering into a land transaction by reason of the pre-completion transaction (paragraph 3).
The position of the transferee, C, is covered mainly by paragraph 4.
- C is the purchaser under a land transaction under section 44(3) (paragraph 4(4)). Paragraph 4(2) provides that this is not prevented by the words ‘between the same parties’ in section 44(10).
- Since paragraph 4(3)(a) is satisfied, paragraph 4(5) applies. Paragraph 4(5), read with paragraph 4(9), determines how paragraph 1 of Schedule 4 should be read to determine the chargeable consideration for C’s acquisition. The result is that both the £1 million given to A and the £100,000 given to B are included - total £1.1 million.
- Under paragraph 8(3) the vendor for C’s acquisition is A; the land transaction return should be completed accordingly.
The position of the transferor, B, is covered mainly by paragraph 5, with relief available under paragraph 15.
- The transactions fall within paragraph 5(1). Under that sub-paragraph, B is deemed to be the purchaser under a notional land transaction with the same effective date as C’s land transaction.
- The chargeable consideration for the notional land transaction is dealt with in paragraph 5(3): it is the total of amount A and amount B. Amount A is £1 million as that is the consideration given by C to A under the original contract (paragraph 5(5) ‘amount A’ (a)). Amount B is nil, so the chargeable consideration is £1 million.
- The transactions fall within paragraph 15 so B can claim full relief from tax (subject to the conditions outlined in paragraphs 15 and 18) under sub-paragraph (4).