SDLTM24770 - Withdrawal of Relief: Relevant Disposal of Units
Relief may be withdrawn if a person:
- makes a relevant disposal of one or more units in the PAIF/CoCS,
- at defined times or in defined circumstances and
- there is, in relation to that disposal, a ‘relevant seeding transaction’.
A ‘relevant seeding transaction’ refers to a transaction subject to seeding relief, whether or not relief was subsequently withdrawn.
Relevant Disposal
A disposal is a ‘relevant disposal’ if (A) exceeds (B):
(A) is:
- where the value of the person making the disposal’s investment in the fund is equal to or greater than the chargeable consideration for all seeding transactions in which they were a vendor immediately before the disposal – the chargeable consideration for those disposals, or
- the value of the person’s investment in the fund immediately prior to the disposal.
(B) Is the value of the person making the disposal’s investment in the fund immediately after the disposal,
The value of the units in the scheme refers to the latest buying price published by the ‘authorised corporate director’ in respect of PAIFs, or the operator in respect of CoCSs on the date in question.
Defined Times
The defined times or circumstances are a disposal of units:
- (i) at any time in the seeding period (See SDLTM24730);
- (ii) at any time in the control period (See SDLTM24750)
- (iii) in pursuance of, or in connection with, arrangements made before the end of the control period
Amount of Relief Withdrawn
Where relief is withdrawn because a person makes a relevant disposal, the amount of SDLT chargeable is the amount that would have been paid in respect of a chargeable transaction but for the relief, or an ‘appropriate portion’ of the relief.
This is calculated using the following:
(C/CCRST) x SDLT
‘C’ means the difference between the amounts in (A) and (B) above,
‘CCRST’ means the total of the chargeable consideration for all seeding transactions,
‘SDLT’ means the tax that would have been chargeable but for the relief (ignoring any amount of tax that has been charged in relation to any earlier disposal of units by vendor – no adjustment is to be made where relief has been withdrawn under other provisions, such as failing to meet the property portfolio test).
Example 4
On 1 June 2024, PAIF Delta acquires major interests in three shopping centres worth £100m each and issues the vendor, Columbus, with £300 million worth of units in the PAIF as consideration for the properties. On 1 November 2024, PAIF Delta acquires major interests in 20 shops worth £500,000 each, and issues the vendor, Danube with £10 million worth of units in the PAIF as consideration for the properties.
On 1 April 2027, the value of Danube’s units have increased to £20m, and they sell their units in the PAIF to an unconnected third party. The disposal takes place in the ‘control period’.
Has there been a relevant disposal?
There will only be a relevant disposal if (A) exceeds (B) –
- As the value of Danube’s investment immediately before the disposal (£20m) exceeds the chargeable consideration for all relevant seeding transactions (£10m), (A) will be £20m.
- As Danube are disposing of all of their units in the PAIF, the value of their investment in the PAIF immediately after the disposal (B) will be £Nil.
- As (A) exceeds (B), the disposal is a relevant disposal.
What is the amount of relief withdrawn?
The amount of relief withdrawn is determined by the statutory formula (C/CCRST) x SDLT where:
- C equals the difference between (A) and (B) - £10m
- CCRST equals the total chargeable consideration for all relevant seeding transactions - £10m
- SDLT equals the amount of tax that would have been charged but for seeding relief having been claimed - £489,500
- (£10m/£10m) x £489,500 = £489,500.
The total amount of relief withdrawn and now payable by PAIF Delta is £489,500.