Guidance on Land Transaction Tax (LTT) relief for certain acquisitions of dwellings.

Organisation:
First published:
19 March 2018
Last updated:

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LTTA/7043 Overview of reliefs

(Paragraph 1 Schedule 14)

Relief from LTT is available in some circumstances to buyers of residential property.

Relief may be available to the buyer of a dwelling from an individual in the following circumstances:

  • a housebuilder or a property trader buys a dwelling as part of a transaction where the individual buys a new dwelling from the house builder
  • a property trader buys a dwelling from the personal representatives of a deceased person
  • a property trader buys a dwelling where a chain of transactions breaks down
  • an employer or a property trader buys a dwelling from an employee who is re-locating.

If all conditions specified for each type of transaction are fulfilled, the acquisition of the individual’s former dwelling is exempt from charge to LTT.

The reliefs that may be claimed by housebuilders and property traders are not available to sole traders, individuals or partnerships with individuals as members (except limited liability partnerships).

The buyer will, if the transaction is notifiable, complete a land transaction return and claim the relief that reflects the particular relief available.

Partial relief is available where the grounds and garden of the former dwelling are larger than the permitted area but all the other conditions for the relief available have been fulfilled.  In these circumstances, a land transaction return should be completed claiming the partial relief available.

Relief may be available to buyers exercising collective rights.

LTTA/7044 Definitions and interpretations

(Paragraphs 9, 2(4), 3(5), 4(5), 5(4), 6(5) and 7(4) Schedule 14)

Definitions used in this guidance are as follows:

  • ‘housebuilder’ means a company, a limited liability partnership or a partnership whose members are all either companies or limited liability partnerships that carries on the business of constructing or adapting buildings or parts of buildings for use as dwellings. The definition of a housebuilder also includes a company or limited liability partnership connected with it to determine whether a company or limited liability partnership is connected with a housebuilder
  • ‘new dwelling’ ‘means a building or part of a building that has been constructed for use as a single dwelling and has not previously been occupied, or, has been adapted for use as a single dwelling and has not been occupied following that adaptation
  • ‘new place of employment’ means the place where the individual will or will normally perform their employment duties following their relocation
  • ‘permitted amount’ in relation to the refurbishment of a dwelling means £10,000, or 5% of the consideration given to buy the dwelling (but not more than £20,000) whichever is the greater
  • ‘permitted area’ means the area of the garden or grounds of the dwelling that either does not exceed an area of half a hectare, or a larger area if required for the reasonable enjoyment of the dwelling and that larger area represents what is most suitable for the occupation or enjoyment of the dwelling. This does not mean that, for example, stables and a paddock would be necessary for the reasonable enjoyment of the dwelling
  • ‘principal’ (in relation to a property trader) means a director of a company, or a member of a limited liability partnership.  In the case of a partnership whose members are entirely made up of companies or limited liability partnerships a principal is a person who is a principal of a member of the partnership (that is, a director of a member company or a member of a member limited liability partnership). Furthermore, principals or employees of a property trader are taken to include principals or employees of a company connected to the property trader
  • ‘property trader’ means a company, a limited liability partnership or a partnership whose members are all either companies or limited liability partnerships that carries on the business of buying and selling dwellings. Anything done by a company connected to the property trader is treated as done by that property trader
  • ‘refurbishment’ of a dwelling means works carried out with the intention to enhance the value of the dwelling, but do not include, cleaning or works to ensure that the dwelling meets minimum safety standards
    • ‘relocation of employment’ means a change of an individual’s place of work due to: 
    • an individual taking up a new employment
    • an alteration in the duties of the individual’s employment, or 
    • an alteration in the place where those duties are normally performed.
    The change of the employee’s residence must have occurred wholly or mainly to allow for reasonable daily travel to that place of employment, and the former residence was not in reasonable daily travel of the new place of employment.

Interpretation

  • acquisition of a dwelling means the acquisition, by way of grant or transfer, of a major interest in the dwelling
  • market value of a dwelling and of the permitted area means respectively the market value of the major interest in the dwelling and of that interest so far as it relates to the area in question.

An individual, that is a natural person, has to be identified as a seller of the former dwelling and also as a buyer of the new dwelling, although they can act with other individuals as seller or buyer (but cannot act with companies, or other non-natural persons).

This would account for cases where the sale and purchase was made with someone else, for example a spouse or partner. These parties do not have to be the same people for both the sale and the purchase, so as to provide for cases where an individual is the sole seller but that individual is a joint buyer.

There is no definition of only or main residence, so it is a question of fact whether a property is, or was, the individual’s only or main residence. There is no requirement that the only or main residence should be in the UK.

There is no provision for an individual to nominate one property as an only or main residence.

LTTA/7045 Relief for acquisition by housebuilder from individual acquiring new dwelling

(Paragraph 2 Schedule 14)

The acquisition of a dwelling by a housebuilder or a company or limited liability partnership connected with a housebuilder may be relieved from LTT if all of the following conditions are met:

  • the housebuilder buys a dwelling, the ‘old dwelling’ from an individual (whether that individual acts alone or with other individuals), and 
  • the individual (whether that individual acts alone or with other individuals) buys a dwelling, the ‘new dwelling’ from the housebuilder, and  
  • the individual:
    • occupied the old dwelling as their main or only residence at some time in the period of 2 years ending with the date of the acquisition, and
    • intends to occupy the new dwelling as their only or main residence, and
  • the acquisition of the old and the new dwelling are entered into in consideration of the other, and 
  • the area of land acquired by the housebuilder does not exceed the permitted area.

If the land acquired by the housebuilder is more than the permitted area, as long as the other conditions above are fulfilled, partial relief may be claimed. Where partial relief is claimed part of the consideration for the acquisition becomes chargeable.

LTTA/7046 Relief for acquisition by property trader from individual acquiring new dwelling

(Paragraph 3 Schedule 14)

The acquisition of a dwelling by a property trader or a company connected with a property trader may be relieved from LTT if all of the following conditions are met:

  • the property trader buys a dwelling, the ‘old dwelling’ from an individual (whether that individual acts alone or with other individuals), and 
  • the individual (whether that individual acts alone or with other individuals) buys a dwelling, the ‘new dwelling’ from the housebuilder, and  
  • the acquisition is in the course of a business that consists of or includes acquiring dwellings from individuals who have acquired a new dwelling from housebuilders, and
  • the individual:
    • occupied the old dwelling as their main or only residence at some time in the period of 2 years ending with the date of the acquisition, and
    • intends to occupy the new dwelling as their only or main residence, and
  • the property trader does not intend to:
    • spend more than the permitted amount on the refurbishment of the old dwelling
    • grant a lease or licence of the old dwelling for a period of more than 6 months, or
    • permit any principals or employee (or persons so connected) to occupy the old dwelling, and
  • the area of land acquired by the housebuilder does not exceed the permitted area. 

If the land acquired by the property trader is more than the permitted area, as long as the other conditions above are fulfilled, partial relief may be claimed. Where partial relief is claimed part of the consideration for the acquisition becomes chargeable.

Where the relief has been claimed but the property trader subsequently breaches any of the conditions (for example by spending more on the refurbishment than is permitted, grants a lease or licence of greater than 6 months, or permits a principal or employee to occupy the dwelling) then relief must be withdrawn and a further return submitted to the WRA.

LTTA/7047 Relief for acquisition by property trader from individual where chain of transactions breaks down

(Paragraph 4 Schedule 14)

The acquisition of a dwelling by a property trader, or a company connected with a property trader, may be relieved from LTT if all of the following conditions are met:

  • the property trader buys a dwelling, the ‘old dwelling’ from an individual (whether that individual acts alone or with other individuals), and 
  • the individual (whether that individual acts alone or with other individuals) has made arrangements to sell the old dwelling and acquire another dwelling (the ‘second dwelling’); and
  • the arrangements to sell the old dwelling fall through, and 
  • the acquisition of the old dwelling is made for the purposes of enabling the individual’s acquisition of the second dwelling to proceed, and  
  • the acquisition is in the course of a business that consists of or includes acquiring dwellings from individuals in those circumstances, and
  • the individual:
    • occupied the old dwelling as their main or only residence at some time in the period of 2 years ending with the date of the acquisition, and
    • intends to occupy the new dwelling as their only or main residence; and
  • the property trader does not intend to:
    • spend more than the permitted amount on the refurbishment of the old dwelling
    • grant a lease or licence of the old dwelling for a period of more than 6 months, or
    • permit any principals or employee (or persons so connected) to occupy the old dwelling, and
  • the area of land acquired by the housebuilder does not exceed the permitted area. 

If the land acquired by the property trader is more than the permitted area, as long as the other conditions above are fulfilled, partial relief may be claimed. Where partial relief is claimed, part of the consideration for the acquisition becomes chargeable. 

Where the relief has been claimed but the property trader subsequently breaches any of the conditions (for example by spending more on the refurbishment than is permitted, grants a lease or licence of greater than 6 months, or permits a principal or employee to occupy the dwelling) relief must be withdrawn and a further return submitted to the WRA.

LTTA/7048 Relief for acquisition by property trader from personal representatives

(Paragraph 5 Schedule 14)

The acquisition of a dwelling by a property trader, or a company connected with a property trader, may be relieved from LTT if all of the following conditions are met:

  • the property trader buys a dwelling from personal representatives of a deceased individual, and 
  • the purchase is in the course of a business that consists of purchasing dwellings from the personal representatives of deceased individuals, and
  • the deceased individual occupied the dwelling as their main or only residence at some time in the period of 2 years ending with the date of that individual’s death, and
  • the property trader does not intend to:
    • spend more than the permitted amount on the refurbishment of the dwelling
    • grant a lease or licence of the dwelling, or
    • permit any principals or employee (or persons so connected) to occupy the dwelling, and
  • the area of land acquired by the housebuilder does not exceed the permitted area.

If the land acquired by the property trader is more than the permitted area, as long as the other conditions above are fulfilled, partial relief may be claimed. Where partial relief is claimed part of the consideration for the acquisition becomes chargeable.

Where the relief has been claimed but the property trader subsequently breaches any of the conditions (for example by spending more on the refurbishment than is permitted, grants a lease or licence of greater than 6 months, or permits a principal or employee to occupy the dwelling) then relief must be withdrawn and a further return submitted to the WRA.

LTTA/7049 Relief for acquisition by property trader in case of relocation of employment

(Paragraph 6 Schedule 14)

The acquisition of a dwelling by a property trader, or a company connected with a property trader, may be relieved from LTT if all of the following conditions are met:

  • the property trader buys a dwelling from an individual (whether that individual acts alone or with other individuals), and 
  • the acquisition is in the course of a business that consists of or includes acquiring dwellings from individuals in connection with a change of residence resulting from a relocation of employment, and
  • the individual occupied the dwelling as their main or only residence at some time in the period of 2 years ending with the date of the acquisition, and
  • the acquisition is made in connection with a change of residence by the employee resulting from a job relocation (referred to as “relocation of employment“ in the legislation), and
  • the purchase price does not exceed the market value of the dwelling, and
  • the property trader does not intend to:
    • spend more than the permitted amount on the refurbishment of the dwelling
    • grant a lease or licence of the dwelling for a period of more than 6 months, or
    • permit any principals or employee (or persons so connected) to occupy the dwelling, and
  • the area of land acquired by the housebuilder does not exceed the permitted area. 
  • Job relocation means a change of the individual’s place of employment due to the individual:
  • becoming an employee of the employer
  • changing their duties with the employer
  • changing the place where they work for the employer.

A change of residence is one arising from job relocation if the change is made wholly or mainly to allow the individual to have their residence within a reasonable daily travelling distance of their new place of work. If the dwelling acquired by the employer was also within reasonable daily travelling distance then the relief is not available.

The individual may need to change their place of residence because where they used to live is not within a reasonable daily travelling distance of their new place of work.

A new place of work means the place where the individual normally performs the duties of their employment after the relocation.

If the land acquired by the property trader is more than the permitted area, as long as the other conditions above are fulfilled, partial relief may be claimed. Where partial relief is claimed part of the consideration for the acquisition becomes chargeable.

Where the relief has been claimed but the property trader subsequently breaches any of the conditions (for example by spending more on the refurbishment than is permitted, grants a lease or licence of greater than 6 months, or permits a principal or employee to occupy the dwelling) relief must be withdrawn and a further return submitted to the WRA.

LTTA/7050 Relief for acquisition by employer in case of relocation of employment

(Paragraph 7 Schedule 14)

The acquisition of a dwelling by an employer may be relieved from LTT if all of the following conditions are met:

  • the dwelling is acquired from an individual, whether alone or with other individuals, by their employer, and
  • the individual occupied the dwelling as their main or only residence at some time in the 2 years prior to the date of acquisition, and
  • the purchase is made because the employee had to change residence due to a job relocation, and
  • the dwelling acquired by the employer was not also suitable for the job relocation, and 
  • the purchase price does not exceed the market value of the dwelling, and
  • the area of land acquired by the employer does not exceed the permitted area.

Job relocation means a change of the individual’s place of employment due to the individual:

  • becoming an employee of the employer
  • changing their duties with the employer
  • changing the place where they work for the employer.

A change of residence is one arising from job relocation if the change is made wholly or mainly to allow the individual to have their residence within a reasonable daily travelling distance of their new place of work. If the dwelling acquired by the employer was also within reasonable daily travelling distance then the relief is not available. 

The individual may need to change their place of residence because where they used to live is not within a reasonable daily travelling distance of their new place of work. 

A new place of work means the place where the individual normally performs the duties of their employment after the relocation.

If the land acquired by the property trader is more than the permitted area, as long as the other conditions above are fulfilled, partial relief may be claimed. Where partial relief is claimed part of the consideration for the acquisition becomes chargeable.

LTTA/7051 Partial relief for certain acquisitions of dwellings

(Paragraphs 2(3), 3(4), 4(4), 5(3), 6(4) and 7(3) Schedule 14)

Where the conditions for the reliefs listed above  are met but that the area of land acquired with the dwelling exceeds the permitted area the taxpayer may be able to claim partial relief in relation to the acquisition of the dwelling, leaving an amount of consideration still chargeable to LTT.

The amount of chargeable consideration is the difference between the market value of the permitted area, that is the old dwelling and grounds allowed, and the total market value of the old dwelling including all gardens and grounds.

Example

A Ltd, a housebuilder, buys a dwelling from Mr and Mrs B (that was their only and main residence) in consideration for Mr and Mrs B acquiring a new dwelling from A Ltd. The consideration given for the old dwelling is £250,000. The old dwelling has gardens and grounds extending to one hectare. The market value of the half hectare over the permitted area is £25,000. A Ltd must submit a return as the transaction is notifiable (as without the relief tax would be chargeable at a rate of more than 0%). It may claim relief as the conditions set out for an acquisition by housebuilder from individual acquiring new dwelling are met. The consideration given is £250,000, and the tax self-assessed is £0. This amount of tax still needs to be self-assessed as, although the tax chargeable is £0 as would be the case had full relief been claimable, A Ltd is not able to claim full relief and must self assess the tax chargeable on the consideration given to which the relief is not claimable (£25,000 which is under the 0% threshold so self-assessed tax is £0).

LTTA/7052 Withdrawal of relief for certain acquisitions of dwellings

(Paragraph 8 Schedule 14)

Relief that has been claimed for transactions where a property trader has acquired a dwelling from:

  • an individual acquiring a new dwelling from a housebuilder
  • an individual where a chain of transactions breaks down
  • the personal representatives of a deceased individual, or
  • an individual in the case of a relocation of employment

may be withdrawn.  

The withdrawal of relief will be triggered, in relation to all property trader reliefs listed above except that which relates to acquisitions from personal representatives of deceased persons, if the property trader:

  • spends more than the permitted amount on the refurbishment of the dwelling
  • grants a lease or licence of the dwelling for a period of more than 6 months, or
  • permits any principals or employee (or persons so connected) to occupy the dwelling.

In relation to relief that was claimed in relation to acquisitions from personal representatives of deceased persons, the relief is withdrawn if the property trader:

  • spends more than the permitted amount on the refurbishment of the dwelling
  • grants any lease or licence of the dwelling, or
  • permits any principals or employee (or persons so connected) to occupy the dwelling.

In such circumstances the taxpayer must send a further return to the WRA and pay any LTT due as a result of the relief being withdrawn. The amount of tax chargeable is therefore the amount that would have been chargeable in respect to the transaction but for the claim to relief. 

LTTA/7053 Relief for persons exercising collective rights

(Paragraph 10 Schedule 14)

This relief is available where leaseholders of flats act together to exercise a statutory right to buy the reversion which is generally the freehold of the building (or buildings) in which the flats are located.

The relief applies only where the purchase is in exercise of: 

  • a right of first refusal under Part 1 Landlord and Tenant Act 1987, or
  • a right of collective enfranchisement under Chapter 1 of Part 1 Leasehold Reform, Housing and Urban Development Act 1993.

In these cases the freehold is acquired in a single transaction by a nominee or appointee (which may be one or more individuals or a company) acting on behalf of the leaseholders.

The relief operates so that a reduced amount of tax may be chargeable from that which would be payable absent the claim to relief.  It therefore brings the amount of tax more in line with that which would have applied if the leaseholders had been able to purchase their shares of the freehold separately.

To determine the amount of tax chargeable the following three steps must be followed:

  1. the total consideration given for the reversionary freehold is divided by the number of flats leased by tenants who are participating in the exercise of the rights (‘qualifying flats’);
  2. the amount of tax is calculated on the amount resulting from the first step;
  3. the tax charge arrived at from the second step is multiplied by the number of qualifying flats.

Example

A nominee acting on behalf of the lessees of 8 out of 10 flats in a block, purchases the freehold of the block for £500,000.

As the statutory right is being exercised by the lessees of 8 flats, the £500,000 consideration is divided by 8 (£62,500) – step 1. The amount of tax on that sum is £0 – step 2. The result of step 2 is multiplied by the number of qualifying flats, in this example 8. The tax payable is therefore £0 x 8 = £0 – step 3.

The nominee or appointee must claim the relief in a land transaction return claiming relief for persons exercising collective rights.

‘Qualifying flats’ means flats held by qualifying tenants who are participating in the exercise of the statutory right concerned, under the terms of that right. This may be fewer than the total number of flats in the block.

‘Flats’ and ‘qualifying tenants’ in respect of each statutory right are defined in the legislation which confers that right.

Flats leased by qualifying tenants who reach a separate agreement with the nominee or appointee, but do not participate in the exercise of the statutory right, cannot be taken into account for the purposes of the relief.