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Withdrawal of group relief
Alternative property finance
Transfers of partnership interests
Extension of Disclosure of Tax Avoidance Scheme rules
Zero Carbon Flats
Consideration including rent - nil rate band
Notification £40,000
SDLT60
Withdrawal of group relief
The group relief anti-avoidance rules are further tightened. An exclusion
from clawback of that relief where the vendor company leaves the group prior
to the purchaser will no longer apply where there is a subsequent change in
control of the purchaser. The measure will apply to changes of control
occurring on or after 13 March 2008 unless in pursuance of a contract
entered into before that date.
Our view
This measure will have important implications for commercial property restructuring including the separation of operating and real estate businesses. It also appears to have the potential to impose a clawback charge where the vendor left the purchaser’s group before the measure was announced but the purchaser has yet to be sold.
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Alternative property finance
Legislation will be introduced in the Finance Bill 2008 to stop schemes that
exploited a relief designed to ensure that people who enter into particular
arrangements with a financial institution driven by religious beliefs that
forbid them from receiving or paying interest - such as those who adhere to
Shari’a law - are not discriminated against by the Stamp Duty Land Tax (SDLT)
system. The changes will have effect for transactions the ‘effective date’
of which is on or after 12 March 2008.
The schemes targeted typically involve a subsidiary of a financial
institution buying property from a third party in the usual way save that in
addition to the purchase price the institution would grant a leaseback
(typically for a short period of time) and a call option over the
reversionary interest in the property (typically exercisable for a short
period of time and at a relatively high price). Then, the real purchaser
would acquire the property (subject to the leaseback) by buying the
subsidiary. The change means that the relief will no longer be available if
there are arrangements in place for a person to acquire control of the
financial institution/subsidiary.
Our view
The changes announced today are probably for clarification rather than an admission that such schemes in the past were effective, and are a product of both the frequency in which schemes using the relief were implemented and disclosure under the Disclosure of Tax Avoidance Scheme rules.
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Transfers of partnership interests
Finance Act 2007 materially extended the scope of the provision that charges
SDLT on transfers of interests in partnerships. The impetus was perceived
avoidance. Unfortunately, it had a significant effect on the commercial
property market.
The solution is a distinction between transfers of interests in partnerships
effected for consideration (so-called ‘Type A transfers’), which continue to
attract SDLT by reference to a proportion of the market value of UK property
equal to the interest transferred, and transfers (or deemed transfers)
effected for no consideration (so-called ‘Type B transfers’), which attract
SDLT in the same way subject to a ‘safe-harbouring’ rule that disregards
property held by the partnership where, amongst other things, the property
was transferred to the partnership before 23 July 2004 or after that date
and the vendor under the transfer was not a partner or a person connected
with a partner. It also introduces the concept of an election under which a
person can disapply the special computation charging provision for transfers
of property to partnerships by a partner or a person connected with a
partner. The advantage is that future transfers of interests in the
partnership would be exempt from SDLT.
Our view
The rules are (even) more complicated than they were before, but the amendments appear to achieve their purpose and should take most cash flows into and from property investment partnerships out of the scope of the charge.
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Extension of Disclosure of Tax Avoidance Scheme rules
The Government announced today that, following consultation, it will extend
the SDLT disclosure rules to residential property worth at least £1m. This
will be enacted by secondary legislation later this year, following
consultation on the detail.
No announcements, however, were made on the Government’s consultation in
relation to the introduction of an indirect SDLT charge on sales of shares
in companies acting as special purpose vehicles (‘SPVs’) for residential
properties, or a “land-rich” charge.
Our view
Whether a land-rich charge will be introduced in either sector (residential or commercial) is difficult to say. There are substantial legal, commercial and technical issues to resolve. If introduced, its impact would be considerable on the commercial property market.
An announcement on the proposal is now likely to be made on the date of the Pre-Budget Report, possibly with draft legislation for consultation. |
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Zero Carbon Flats
Relief from stamp duty on the first sale of new zero-carbon flats has been
introduced with effect from 1 October 2007. The relief applies up to the
£500,000 threshold and will expire on 30 September 2012. Where the
consideration exceeds £500,000, the SDLT liability will be reduced by
£15,000, with the balance of SDLT due in the normal way.
Our view
The purpose of this relief is to encourage the development of zero carbon properties in line with the Government’s green agenda.
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Consideration including rent - nil rate band
Where a lease was granted and the consideration given included both a
premium and rent, and that rent was more than £600 per annum, the normal 0%
thresholds (£125,000 for residential property and £150,000 for
non-residential property) were withdrawn. This meant that even where the
premium paid was less than the 0% threshold, it was treated as falling
within the 1% band and SDLT was therefore charged at 1%.
The measures introduced, effective from and including today, mean that:
- for non-residential properties this rule now only applies where the rent
is £1,000 per annum or more; and
- for residential properties the rule no longer applies.
Our view
This anti-avoidance rule sought to target tenants who were manipulating the premium and rent paid to reduce the SDLT charged. By restricting the application of the rule to non-residential properties, this has relieved a number of private tenants who were unfairly caught.
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Notification £40,000
HMRC were required to be notified of a number of land transactions, even
where the consideration for those transactions was within the 0% thresholds
(no SDLT was therefore payable).
The measures introduced, effective from and including today, mean that a
notification threshold of £40,000 will apply to most freehold and leasehold
transactions.
Our view
This is a welcome simplification of the notification rules, which will reduce the number of Land Transaction Returns prepared and submitted to HMRC.
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SDLT60
A certificate that no SDLT is due was previously required to be signed by
the purchaser. Under proposed changes to be introduced later in 2008, agents
will be able to sign the declaration in the certificate on behalf of their
clients.
Our view
This is a welcome proposal, which will reduce the SDLT administrative burden on taxpayers and their advisers
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