Oh, what a (SDLT) relief…


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Sometimes, tax is just taxing. And at other times, tax is just plain crazily complicated. Take SDLT1 (I know, you would rather not); it is now more complex than ever with a myriad of different rates, a 3% surcharge, confusion over what is "residential property" and a wide spectrum of reliefs. So let's focus on reliefs for now and if you're a housing provider of whatever ilk, what SDLT reliefs should be on your radar? 

Registered Providers (Private RPs/ housing associations)

Charities relief is the obvious one here, where the charitable RP is buying land 'for qualifying charitable purposes'. The problem, however, is where there is an element of land will be used for private sale (or other non-charitable use), even if it cross-subsidises the affordable/charitable element of a scheme (sorry, I don't make the rules). The RP may get the charities relief upfront but suffer a clawback later, or no relief at all depending on the value of the private element.

If the purchase is 'funded with the assistance of public subsidy' (basically section 18, section 126 or section 19 grant), then RP public subsidy relief may be the better relief to claim. This is provided that the grant is used to purchase the land, and there is no questioning the use of the land and no clawback.

Another useful relief, which is often ignored, is 'Qualifying Vendor' relief. This is available where a non-profit RP acquires land from a 'qualifying vendor' – more generally, a local authority or another non-profit RP. This is the top trumps of the RP reliefs, albeit limited to narrow but common circumstances of a RP acquiring land from a council: no clawback, no questioning how much grant has to be allocated to 'fund' the purchase and no debate as to when grant is to be treated as allocated to a particular purchase.

So what about for-profit RPs? Simply put, you are only going to get the RP public subsidy relief (provided you're purchasing with some or all of the relevant grant of course!). But all is not lost, as some of the non-RP focussed reliefs, which are mentioned below, may apply.

Investors/funds/REITs

Where an investor purchases residential portfolios (i.e more than one dwelling), the main relief to consider will be multiple dwellings relief (MDR). The relief operates by calculating the SDLT for one dwelling, based on the average consideration, that is, the total consideration attributable to all of the dwellings divided by the number of dwellings. The resulting SDLT charge (expect the higher 3%+ rates to apply) for that one dwelling is then multiplied by the total number of dwellings to arrive at the total SDLT cost. In this way (and depending on the number of units and the total consideration), one would expect less of the consideration to be taxed at the higher SDLT residential rates. There are conditions to be met (of course there are!) such as the dwellings not being subject to leases with an initial term in excess of 21 years and the relief can be clawed back, for example, if the number of units decreases in the following three years.

It is also worth remembering the 'six or more' rule. Whilst not a relief as such, if 6 or more dwellings are acquired as part of the same transaction, then the non-residential rates of SDLT will apply. So which to go for: residential rates with MDR or non-residential rates with no MDR? This is where things can get complicated and you just have to crunch the numbers. And if any of the units have an individual value in excess of £500,000, then things get even more complicated with apportionments and a flat rate of 15% potentially applying to such units.

Local authorities

There are a number of obscure reliefs available to local authorities which apply when a local authority acquires land by way of a CPO (CPO relief) and also when a local authority acquires a land interest (not necessarily limited to housing) pursuant to a planning obligation which is enforceable against the vendor (generally, pursuant to a s.106 agreement).

The 'planning obligation' relief can be useful to local authorities in minimising tax costs where they are to acquire land or rights over land (such as nomination rights) as part of a large regeneration project for which the local authority is granting planning permission i.e. include the obligation to transfer the land or grant rights within the s.106 agreement.

Given the increasing tendency of local authorities looking to exploit their land assets, for example via subsidiary companies and strategic partnerships, SDLT group relief will be relevant where land is transferred from one group company to another. Here, a local authority is treated as a company so that the relief is in theory available in respect of land being transferred from the local authority to a wholly owned subsidiary.

SDLT group relief is not limited to local authorities: it is generally available in respect of transfers of land between companies within a SDLT group. Companies are part of an SDLT group if one is the 75% subsidiary of the other company or both companies are 75% subsidiaries of a third company. The 75% test relates to the holding of at least 75% of the ordinary share capital and the economic value in the company. So if you have a company limited by guarantee in the corporate structure, this can break the SDLT group.

The availability or otherwise of SDLT group relief can be of particular importance since if the relief proves not to be available or is clawed back (yes, there is clawback, if, for example, the purchaser company leaves the group with the land in question within 3 years of the purchase) then SDLT will be charged by reference to not less than the market value of the land at the time of acquisition by the group company. So transferring land assets between group companies for nominal value of say, £1 does not necessarily mean there is no SDLT liability.

Where land may be contributed to a partnership by a local authority (or any other land owner), such as a limited liability partnership (LLP) of which the local authority (land owner) is a member, then the SDLT partnership rules could apply to mitigate the SDLT cost arising to the LLP. This is not a relief as such and the SDLT partnership rules are notoriously complex but can work in favour of reducing SDLT costs.

Private developers/housebuilders

There is a specific relief aimed at property developers/house builders that part exchange dwellings with the vendor. However, of more significance will be SDLT subsale relief where the developer flips on land (or a part of it) that it has contracted to acquire.

Here, the developer would want to make sure it doesn't pick up a SDLT cost on the land it does not hold on to. This relief was heavily abused in the past (according to HMRC at least) and the rules were changed in 2013 so that we now have the concept of pre-completion transactions. Safe to say, in a straightforward 'standard' subsale where A contracts to sell to B and B contracts to sell to C then provided the B-C contract completes at the same time as the A-B contract and party B has not 'substantially performed' the A-B contract beforehand, then B should be able to claim subsale relief. The rules differ depending on whether the subsale is effected by way of contract assignment, a true subsale or a novation, and as ever, the devil will be in the detail of both the SDLT rules, what the contracts say and what the parties have done, if anything, in relation to the land in question (such as inadvertently taking possession or having access ahead of completion).

Sale and leaseback relief is generally available to all taxpayers, not just developers and will be available to relieve SDLT costs on the leaseback element. For the relief to apply, the only other consideration for the sale must be cash and/or the assumption of debt. Without the relief, there is a risk that the developer would suffer an SDLT cost based on the market value of the lease. This is because the sale and leaseback will be treated as a land exchange for SDLT purposes so that market value will be imposed if such value is higher than the actual value paid or given for the land transaction.

The reliefs mentioned above are not exhaustive and the availability of a particular relief or exemption under the SDLT code will ultimately be specific to the facts, the parties and the transaction in question. The SDLT costs of a particular transaction and whether a relief is available should be thought through in advance of exchange and not left to the last minute. Any available relief will generally need to be claimed by the purchaser in the SDLT return to be submitted to HMRC. So, it is important to remember that as from 1 March 2019, the filing period for SDLT returns is being reduced to 14 days. So be prepared to be pestered by your conveyancers and solicitors to sign off the SDLT returns sooner rather than later, whether or not a relief is being claimed. You have been warned.

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