Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Stamp Duty Land Tax Manual

From
HM Revenue & Customs
Updated
, see all updates

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.