Example 3, Assignment of part
This is an example of how the rules apply to an assignment of rights relating to only part of the land under the original contract.
- A enters into a sale and purchase agreement with B for some land with a consideration of £1 million payable on completion. The land consists of Plot 1 (value: £600,000) and Plot 2 (value £400,000).
- B assigns its rights to Plot 2 under the contract to C.
- C completes the acquisition of Plot 2 and pays A £400,000.
- B completes the acquisition of Plot 1 and pays A £600,000.
The intended outcome is that B should have to make a land transaction return for a transaction with consideration of £400,000 in respect of Plot 2 but can include a claim for full relief. C should have to make a land transaction return with consideration of £400,000. B should also have to make a land transaction return for a transaction with consideration of £600,000 in respect of Plot 1.
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).
- Paragraphs 4 and 5 are to be read as if there were a separate original contract for Plot 2 (paragraph 7).
The position of the transferee, C, is covered mainly by paragraph 4, on the basis that there was a ‘separate contract’ for Plot 2 (paragraph 7).
- 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. There was no consideration given for the assignment of rights. The £600,000 given by B on completion of the acquisition of Plot 1 is regarded as given under a different contract. So the result is that just the £400,000 given by C on completion is the chargeable consideration.
The position of the transferor, B, is covered mainly by paragraph 5. Again this must be read on the basis that there was a ‘separate contract’ for Plot 2 (paragraph 7). Relief is 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 consideration for B’s acquisition is dealt with in paragraph 5(3). That consideration is £400,000 as that is the consideration given by C to A in respect of the subject matter of the original contract (see point (a) regarding amount ‘A’ under paragraph 5(5)).
The transactions fall within paragraph 15 so B can claim full relief under sub-paragraph (4) against the tax due under the notional land transaction.
This leaves the acquisition of Plot 1 by B. This transaction remains within the scope of section 44. There is a land transaction under section 44(3) and the chargeable consideration is the £600,000 B gives to acquire Plot 1.
In this example, it is clear how much of the consideration under the original contract relates to Plot 1 and how much to Plot 2. More generally, the consideration under the original contract would need to be apportioned on a just and reasonable basis as required under paragraph 4 of Schedule 4.
If the subject-matter of the original contract is a freehold interest then an assignment of rights (or subsale) involving the grant of a lease out of that freehold cannot be a pre-completion transaction since the lease is not the whole or part of the subject-matter of the original contract (paragraph 1(2)(a) and (7)). Similarly if the subject-matter of the original contract is a head-lease and the assignment (or subsale) involves the grant of a sub-lease.