Guidance on particular transactions for Land Transaction Tax.

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First published:
1 March 2018
Last updated:

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LTTA/2130 Contract and transfer

(section 10)

When a contract is completed or substantially performed there will be a land transaction and the buyer may need to make a return if the transaction is notifiable, and may need to pay land transaction tax if the transaction is a chargeable transaction. A person is not considered to have entered into a land transaction if they have only entered into a contract.

LTTA/2140 Contract completed without previous substantial performance

Where a contract is completed without prior substantial performance, the contract and the completion of that transaction are parts of the same single land transaction. The effective date for the land transaction is the date of completion.

LTTA/2150 Substantial performance

Where a contract is substantially performed without having been completed, the contract is treated as if it were the transaction and the effective date of the transaction is the date the contract is substantially performed.

When substantial performance occurs

A contract will be substantially performed when:

  • the buyer, or a person connected to them, takes possession of the whole or substantially the whole of the subject matter of the contract; or
  • a substantial amount of the consideration is paid or provided.

Possession of the subject matter includes the buyer, or a person connected to them, having the right to receive, or actual receipt of, rents and profits from the property.  Substantial performance through the taking of possession will occur whether it occurs as a result of the contract or under a licence, temporary lease or a tenancy at will.

Where there is no rent as part of the consideration, a substantial amount of the consideration is paid when the whole or substantially the whole of the consideration is paid or provided.

Where the only consideration is rent, a substantial amount of the consideration is paid when the first payment of rent is made.

Where the consideration includes both rent and consideration other than rent, substantial performance will occur at the earliest of:

  • when the whole or substantially the whole of the consideration is paid or provided; or
  • the first payment of rent is made.

Where the consideration is other than rent, substantially ‘the whole’ means an amount equal to or greater than 90% of the total consideration due under the contract, unless the circumstances of the transaction are such that in substance the whole of the consideration has been paid or provided.

In the event that the buyer already has occupation of the premises under a different interest, for example when the purchase is of a freehold and the purchaser is a tenant, substantial performance on the basis of possession will not be triggered at the time of the contract as long as the purchaser adheres to the covenants in the lease. However, depending upon the facts, it may still be possible for the taxpayer to trigger substantial performance by payment of substantially all of the consideration.

Example 1

Mr A has entered a contract to buy a property. When contracts are entered into he pays a deposit of 20% of the consideration This will not represent substantial performance. The contract is to be completed on 30 April 2020. On 1 December 2019 Mr A pays a further 70% of the consideration to the seller. He has now paid substantially the whole of the consideration and has therefore substantially performed the contract (even though he has not been given possession of the property). The effective date of the transaction is 1 December 2019 and a return will need to be made by 31 December 2019. On completion of the contract (30 April 2020) another return will need to be made.

Example 2

B Ltd is allowed into possession in order to fit out a shop prior to commencing trading. The agreement with the landlord is that while the agreed lease start date is later, B Ltd may enter the property earlier to fit it out. The landlord however, wants a pro rata payment of the rent to be made on the date that B Ltd is first permitted access to the shop. The first payment of rent will be the substantial performance of that lease.

Alternatively, if the consideration was to be paid only by consideration other than rent and the seller allowed B Ltd to carry out fitting out works for the 2 months before the transaction completes, the right to occupy and use of the shop amounts to substantial performance of the contract.

Example 3

Y Ltd enters into a contract to acquire land from W Ltd which it is to develop into a light industrial park. The area of the land is 3 hectares, and the price set in the contract is £1,200,000, with the contract signed on 1 July 2020 and a completion date of 30 June 2022. Each part of the land is of equal value. The completion date has been fixed at relatively far into the future because W Ltd has granted a lease over 2 hectares of the land to a camping site that has a termination date of 31 December 2021.

W Ltd agrees to let Y Ltd access on 1 July 2020 to the one hectare that is not leased so that it can start preparatory work.  As the land is of equal value, and Y Ltd has only been given access to a third of the land, it has not taken possession of substantially the whole of the land. The contract has not therefore been substantially completed.

The owner of the campsite on land leased from W Ltd becomes ill and from 1 September 2020 is unable to run the campsite any longer. W Ltd, which has had a very positive relationship with the owner of the campsite, agrees to the immediate surrender of the lease for no consideration, and also allows the owner of the campsite to remain in occupation (under a licence) of the campsite operator‘s house and gardens, specifying that it must be vacated by 31 December 2021.

Y Ltd asks, on 1 January 2022, to be allowed access to the other 2 hectares (other than the operator‘s house and gardens). W Ltd agrees to this request, and W Ltd takes possession of the remaining 2 hectares (except the house) on 1 March 2022. At this point, W Ltd as taken possession of substantially the whole of the land and has therefore the contract has been substantially performed.

Example 4

T Ltd enters into a contract to acquire a building from U Ltd. The property has a market value of £10m. The purchase price is to be met, as set out in a contract dated 5 January 2020, by the payment of £15m. That amount is to be paid in 2 tranches, £10m payable on 5 January 2020 and the balance in 2150. The WRA will consider that in such a case that the contract has been substantially performed as, whilst there remains a third of the consideration to be paid, that payment date is so far into the future that substantially all of the consideration has been given. The consideration for the transaction remains £15m, the amount in the contract.

In this example, it is also possible that T Ltd will have taken possession of the property as well. Therefore, it could have substantially performed the contract under those rules.

LTTA/2160 Substantial performance - Completion of contract following substantial performance

Where a transaction has been substantially performed and is subsequently completed, both the substantial performance of the contract and the completion of the contract can be notifiable transactions.

Where the tax charged on the completion of the contract is higher than the amount of tax chargeable on the substantial performance of the contract, the additional amount must be included in the self-assessment for that return. The return for both the substantial performance of the contract and the return for the completion of the transaction must show the full amount of consideration payable, known at the date each return is completed.

LTTA/2170 Substantial performance – contract not carried into effect

Following the substantial performance of a contract, it is possible that the contract will (in whole or part) be rescinded, annulled, or for any other reason not carried into effect. If this occurs, the WRA will pay back the tax paid (or the appropriate amount of the tax) if an amended return is made by the taxpayer reflecting the effect of the rescinding etc. of the contract (or part of the contract).

Repayment can only be achieved through the submission of an amended return. An amended return can only be made during the period of 12 months beginning with the filing date for the return that has been impacted by the rescinding etc. of the contract.

The consequence of this rule is that the taxpayer has only the 12 months from the filing date for the substantial performance of the contract. That is 12 months and 30 days from the effective date of the transaction. If the contract is rescinded outside this period, the taxpayer will not be able to amend their return and will not be able to claim a repayment.

LTTA/2180 Contract providing for transfer to third party

(section 11)

Where a contract is entered into that requires one party to the contract (P2), the right to direct or request the seller (P1) to transfer the subject matter of the contract to themselves or to a third party (P3),the following rules apply:

  • P2  is not treated as entering into a land transaction as a result of entering into the contract;
  • if the chargeable interest is transferred to P3 at P2’s direction, without substantial performance of the contract by P2 having occurred before that transfer, then there is only one land transaction, that between P1 to P3;
  • if the chargeable interest is transferred to P2, the usual rules relating to contract and transfer apply;
  • the usual rules also apply in relation to any contract between P2 and P3;
  • if the contract is substantially performed by P2, even if the contract is subsequently completed by the transfer of the chargeable interest from P1 to P3, P2 is treated as having acquired a chargeable interest and entered into a land transaction. The effective date of that transaction is the date of substantial performance.

In the event that, following substantial performance of the contract by P2, the contract is rescinded, annulled or otherwise not carried into effect, repayment of tax may be possible.

An example of this is a development agreement where the developer has the right to enter onto the land and build on it and then direct the conveyance of the completed plots. In this case, the effective date of the transaction is the date when the contract is substantially performed by P2; when P2 took possession of the property in order to develop it. There will therefore be two LTT liabilities arising; one on the substantial performance of the contract by P2 and a second on the conveyance to the third party end buyer.

Where P2 directs the original seller (P1) to transfer a plot (or the whole of the property) to P3, the rules above about ‘contract and conveyance’, ‘completion without substantial performance’ and ‘substantial performance without completion’ apply to the contract between P2 and P3 and to the conveyance from P1 to P3. The result is that P3 is liable to pay LTT on the consideration paid to P1 or P2, either on completion or on substantial performance of their contract.

Example 1

B Ltd (P2) enters into a contract to purchase a property from A Ltd (P1). The contract includes a clause that permits B Ltd to direct A Ltd to transfer the property to a third party. B Ltd pays A Ltd 100% of the agreed purchase price (£2,000,000) and has therefore substantially performed the contract and must make a return to the WRA within 30 days following the substantial performance of the contract. B Ltd then develops the land into a shopping centre. When the shopping centre is complete B Ltd sells the centre to C Ltd (P3) by separate contract for £6,000,000. B Ltd instructs A Ltd to transfer the property to C Ltd. C Ltd’s return (with B Ltd as seller) will show the consideration of £6,000,000. C Ltd will also complete the sale from A Ltd showing itself as buyer as B Ltd has not completed the transfer of the property to itself.

LTTA/2190 Contract providing for transfer to third party: effect of transfer of rights

(section 12)

These rules complement the rules for a contract providing for transfer to third party. 

If a contract provides for the subject matter to be transferred from the seller (P1) to a third party (P3) at the direction of the buyer (P2) but the rights of that buyer become exercisable by another person (P4) then:

  • P4 is not regarded as entering into a land transaction by reason of the transfer of rights;
  • the transfer of rights is treated as a separate (‘secondary’) contract;
  • P4 is treated as though they were the buyer (P2) under the original contract;
  • the consideration due from P4 under the secondary contract is; the consideration under the original contract that relates to the subject matter of the transfer of rights that is to be given by P4 (or a person connected to them), and, the consideration for the transfer of rights.

If the original contract has been substantially performed by P2 then that substantial performance is disregarded (that is to say that P2 is not liable to the return obligations arising from the substantial performance) if it occurs:

  • at the same time as, and in connection with, the substantial performance of the secondary contract; or,
  • after the transfer of rights to P4.

If there are a number of successive transfers of rights, the rules are applied to each of those transfers of rights separately. As such the substantial performance of a secondary contract related to an earlier transfer of rights is to be disregarded if it occurs:

  • at the same time as and in connection with the substantial performance of the secondary contract arising from a subsequent transfer of rights; or,
  • after that subsequent transfer.

If the transfer of rights relates to only part of the subject matter of the original contract, or only to some of the rights under that contract then:

  • the rules apply only in relation to that part of the subject matter or those rights; and,
  • the contract relating to the other part or rights is treated as a separate contract.

The effective date of a land transaction arising on a secondary contract cannot be earlier than the date of the assignment etc. that resulted in the transfer of rights to P4.

LTTA/2200 Pre-completion transactions

(section 13 and Schedule 2)

The starting point for a pre-completion transaction is that there must be a contract for a land transaction which is to be completed by a transfer. Before that ‘original contract’ is substantially performed or completed, the buyer under that contract may enter into a further agreement as a result of which another person is entitled to call for the transfer of all or part of the subject-matter of the original contract. Such an agreement is a pre-completion transaction.

In the context of a pre-completion transaction, the buyer under the original contract is sometimes called ‘the transferor’ and the ultimate buyer ‘the transferee’.

This is a complex area of LTT and the guidance therefore makes specific reference to the relevant legislation.

LTTA/2210 Outline of legislation

Section 13 introduces Schedule 2 which contains provisions about pre-completion transactions. Unless otherwise specified, references to paragraphs in this guidance are to paragraphs of Schedule 2. The Schedule can be broken down into the following different areas.

Paragraphs 1-5 Introductory provisions and key definitions
Paragraphs 6-11 Assignments of rights
Paragraphs 12-13 Free-standing transfers
Paragraphs 14 Exceptions
Paragraphs 15-17 Minimum consideration rule
Paragraphs 18-20 Relief for the transferor
Paragraphs 20 Interpretation

Introductory provisions and key definitions

Paragraphs 1-5

These paragraphs define a pre-completion transaction and make a distinction between assignments of rights and other pre-completion transactions (known as free-standing transfers). They also state that the transferee is not regarded as entering into a land transaction by reason only of the pre-completion transaction.

Assignments of rights

Paragraphs 6-11

Paragraph 7 outlines how the transferee is treated in these cases. Broadly, the consideration for the transferee’s acquisition is whatever the transferee gives under the original contract, plus whatever the transferee gives for the assignment of rights.

The seller for the transferee’s acquisition is generally the original seller under the original contract, although there are exceptions to this general rule (see paragraph 11).

Paragraph 8 creates a ‘notional land transaction’ for the transferor under an assignment of rights (sub-paragraph 8(1)). If there are successive assignments, then there is also a notional ‘additional land transaction’ for each additional subsequent transferor in the chain (sub-paragraph 8(3)). Broadly, the consideration for a notional land transaction is any consideration given under the original contract by either the transferee or the transferor. For an additional land transaction, any consideration given by the buyer under the additional land transaction for the preceding assignment is also brought into charge.

Where the original contract is substantially performed but subsequently rescinded or annulled, the transferee’s position will be covered by the normal rules. Similar provision is made in paragraph 9 for a notional or additional land transaction within paragraph 8.

An assignment of rights may relate to only part of the land that is the subject-matter of the original contract. In such a case, paragraphs 7 and 8 apply as if the original contract were split into two contracts: one for the land that is subject to the assignment and one for the rest of the land (paragraph 10).

Free-standing transfers

Paragraphs 12-13

Paragraph 13 concerns the transferee. It adds any consideration given for the pre-completion transaction to the consideration otherwise given by the transferee. As for assignments of rights, the seller for the transferee’s acquisition is generally the original seller.

No special provision is made for the transferor. If the free-standing transfer is a sub-sale, then the original contract will be completed (or substantially performed) so the transferor will be the buyer under a land transaction as normal under the rules relating to contract and transfer. If the free-standing transfer is a novation, then there is no land transaction under which the transferor is the buyer, so the transferor has no need to file a return or claim relief.

The seller in linked transactions

Paragraph 14

Whether the transferee’s acquisition falls under the rules for an assignment of rights (paragraphs 6 – 11) or free-standing transfers (paragraphs 12 – 13) the seller will usually be the original seller, subject to certain exceptions.

Once the subject matter of the original contract has been transferred to the transferee (or in the case of an assignment of rights, once the original contract has been substantially performed) for the purposes of the linked transaction rules (section 8(1) of LTTA) the seller can be assumed to be both the seller in the original transaction, and any transferor in one or more pre-completion transactions relating to it. This will generally mean that, if the transferor and transferee are connected persons, then the linked transaction rules will apply to the original transaction and pre-completion transaction relating to it. Example 5, in section LTTA/2230 below, illustrates how this operates in practice.

Minimum consideration rule

Paragraphs 15-17

The minimum consideration rule only applies where the ultimate buyer is either connected with, or not acting at arm’s length from, the transferor (or any other preceding transferor where there are successive pre-completion transactions). It can be ignored for all other transactions.

Where the rule applies, it can increase the consideration for the ultimate buyer’s acquisition. If either of 2 ‘minimum amounts’ is higher than the amount of consideration given by the normal rules, the consideration is increased to the higher minimum amount.

The first minimum amount is generally the amount due under original contract. The second minimum amount is given by a formula which includes the net amount given by each party (subject to certain exceptions) to the transactions.

Relief for the transferor

Paragraphs 1-20

The transferor can claim full relief for its land transaction in certain circumstances. For relief to be available, the pre-completion transaction must be an assignment of rights or a sub-sale. There are separate reliefs for assignments (paragraph 18) and for sub-sales (paragraph 19). For a sub-sale, the original contract must be substantially performed or completed at the same time as and in connection with the substantial performance or completion of the sub-sale contract. Partial relief is available where the assignment or sub-sale relates to only part of the land that is the subject of the original contract. Relief must be claimed in a land transaction return, or an amendment to such a return. Please select the appropriate relief on the LTT return.
 
Relief is barred where the relief targeted anti-avoidance rule applies.

LTTA/2220 Registration of interest in land

A taxpayer is prevented from registering land acquired in most notifiable land transactions unless the person applying to have their interest registered produces a WRA certificate to HM Land Registry showing they have met their LTT obligations.

In a sub-sale, there will generally be 2 transfers of the land: A to B and B to C.

If B wishes to register its interest in the land, it will need to produce a WRA certificate together with its application for registration and the transfer from A to B, in the normal way.

If B does not wish to register its interest in the land, C will need to produce C’s WRA certificate, its application for registration and the transfers from A to B and B to C. With its application for registration, C should also either:

  1. confirm in writing that B acquired the land from A and transferred it to C in pursuance of a ‘free-standing transfer’ for the purposes of Schedule 2 to the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017; or
  2. produce written confirmation from B (or B’s agent) that B acquired the land from A and transferred it to C in pursuance of a ‘free-standing transfer’ for the purposes of Schedule 2 to the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017.

If there is only one transfer of the land – A to C – then C will only need to produce its WRA certificate, its application for registration and the transfer from A to C.

In an assignment of rights, there will be just one transfer of the land: A to C. In this case, C can register its interest in the normal way. The notional land transaction between A and B is notifiable for LTT purposes even though it is not an acquisition of a major or chargeable interest. There is no need for a letter confirming an assignment of rights. Only C’s WRA certificate is needed.

LTTA/2230 Examples

Example 1 - Simple assignments of rights

This is an example of how the rules apply to an assignment of rights.

  • A enters into a sale and purchase agreement with B for some land with a consideration of £1m payable on completion.
  • B assigns its rights under the contract to C for a payment of £100,000.
  • C completes the acquisition and pays A £1m.

The outcome is that B must make a land transaction return for a transaction with consideration of £1m but can include a claim for full relief. C must make a land transaction return with consideration of £1.1m.

The transactions fall within Schedule 2 in the following way:

  • The transactions fall within the definition of a pre-completion transaction in paragraphs 2 and 3;
  • The pre-completion transaction is an ‘assignment of rights’ that falls within paragraph 6;
  • The original contract is the contract between A and B, the original buyer 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 5).

The position of the transferee, C, is covered mainly by paragraph 11.

C is the buyer under a land transaction and this is not prevented by the words ‘between the same parties’.

The chargeable consideration for C’s acquisition is established in line with the rules in Schedule 4. The result is that both the £1m given to A and the £100,000 given to B are included – total £1.1m.

The seller for C’s acquisition is A; the land transaction return should be completed accordingly.

The position of the transferor, B, is that:

  • B is deemed to be the buyer under a notional land transaction with the same effective date as C’s land transaction;
  • The chargeable consideration for the notional land transaction is the total of amount A and amount B. Amount A is £1m as that is the consideration given by C to A under the original contract. Amount B is nil as there was no other consideration given under the original contract, so the chargeable consideration for taxpayer B is £1m;
  • The transactions permit B to claim full relief from tax (subject to complying with the specific relief rule and not meeting the conditions that would trigger the relief targeted anti-avoidance rule).

Example 2 - Sub-sale and minimum consideration rule

This is an example of a sub-sale. It also illustrates how the minimum consideration rule works where parties are connected.

  • A enters into a sale and purchase agreement with B for some land for consideration of £1m payable on completion.
  • B enters into a sale and purchase agreement for the same land with C for consideration of £900,000 payable on completion.
  • At a single completion meeting the sales from A to B and from B to C are completed; consideration of £900,000 is paid by C to B and consideration of £1m is paid by B to A.

If B and C are unconnected and acting at arm’s length, then B must make a land transaction return for a transaction with consideration of £1m but can include a claim for full relief. C must make a land transaction return with consideration of £900,000.

This is because:

  • The transactions fall within the definition of a pre-completion transaction that is a free-standing transfer;
  • The original contract is the contract between A and B, the original buyer 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;
  • The pre-completion transaction is not an assignment of rights so the rules concerning a free-standing transfer apply;
  • In the absence of any special provision, B is regarded as entering into a land transaction with A for consideration of £1m (the amount in the original contract);
  • The pre-completion transaction is a qualifying sub-sale and meets the relevant conditions set out for relief for qualifying sub-sales. So B can claim relief (subject to the complying with the specific relief rule and not meeting the conditions that would trigger the relief TAAR).

C’s acquisition from B is one which has completed without prior substantial performance. The consideration is taken to include the consideration given for the free-standing transfer, although that is nil in this case. So the consideration is just the £900,000 paid by C to B in the normal way.

The seller for C’s acquisition is A and the land transaction return should be completed accordingly.
 
If B and C were connected, C’s acquisition would be subject to the minimum consideration rule – paragraphs 15-17 – with the intended outcome that the chargeable consideration should be increased from £900,000 to £1m.

The consideration for C’s acquisition is taken to be the greatest of three amounts: either the £900,000 already determined above (i.e. what C paid to A) or the first minimum amount or the second minimum amount.

The first minimum amount is defined in paragraph 16(2) and (3). In this case it is the £1m that was due under the contract between A and B.

The second minimum amount is set out in paragraph 17 and is the total of the net amounts of consideration (as determined in sub-paragraph 17(2)) given by the relevant parties (as per sub-paragraph 17(3)) and subject to sub-paragraph 17(4)). In this case, B and C are the relevant parties. The net amount of consideration given by C is £900,000. The net amount of consideration given by B is £100,000 (that is, the £1m given to A less the £900,000 received from C). So the total of the net amounts of consideration is £1m.

The result is that the consideration for C’s acquisition is £1m – the greatest amount out of £900,000, £1m and £1m.

The seller for C’s acquisition is A and the land transaction return should be completed accordingly.

This means that the transactions described in this example will be linked for the purposes of Section 8(1) of the act. For an example of how this works in practice, see example 5.

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 outcome is that B must 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 of the tax arising on that amount of consideration. C must make a land transaction return with consideration of £400,000. B must also make a land transaction return for a transaction with consideration of £600,000 in respect of Plot 1.

This is because:

  • The transactions fall within the definition of a pre-completion transaction;
  • The pre-completion transaction is an ‘assignment of rights’;
  • The original contract is the contract between A and B, the original buyer 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;
  • As there is an assignment of rights relating to only a part of the original contract, paragraph 10 ensures that the rules are to be operated as though there was a separate original contract for Plot 2.

The transferee, C, completes their return and pays tax on the basis that there was a ‘separate contract’ for Plot 2.

The position of the transferee, C, is covered mainly by paragraph 11.
C is the buyer under a land transaction and this is not prevented by the words ‘between the same parties’.

The £600,000 given by B on completion of the acquisition of Plot 1 is regarded as given under a different contract. C’s return will show themselves as buyer and A as seller with just the £400,000 given by C on completion as the chargeable consideration.
 
The position of the transferor, B, on the basis that there was a ‘separate contract’ for Plot 2 and relief being available, is that:

  • B is deemed to be the buyer under a notional land transaction with the same effective date as C’s land transaction.
  • The chargeable consideration for B’s acquisition is dealt with in paragraph 8(6)(a). 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.
  • The transactions permit B to claim full relief from tax (subject to the complying with the specific relief rule and not meeting the conditions that would trigger the relief targeted anti-avoidance rule).

This leaves the acquisition of Plot 1 by B. The facts are that B has entered into a land transaction with chargeable consideration of the £600,000 that 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 commonly, 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, an assignment of rights (or sub-sale) involving the grant of a lease out of that freehold cannot be a pre-completion transaction, as the lease is not the whole or part of the subject-matter of the original contract (paragraph 3(1)(a) and 4(1)). The same rules apply if the subject-matter of the original contract is a head-lease and the assignment (or sub-sale) involves the grant of a sub-lease.

Example 4 - Sub-sale of part

This is an example of how the rules apply to a sub-sale 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 enters into a sub-sale agreement to sell Plot 2 to C for £400,000.
  • At a single completion meeting, the sales from A to B and from B to C are completed; consideration of £400,000 is paid by C to B and consideration of £1m is paid by B to A.

B must make a land transaction return for the land transaction with consideration, on first principles, of £1m but can include a claim for partial relief reducing the consideration to £600,000. C must also make a land transaction return (with B as seller), with consideration of £400,000.
 
The transactions are within Schedule 2 because:

  • The transactions are within the definition of a pre-completion transaction;
  • The pre-completion transaction is a ‘free-standing transfer’.

The original contract is the contract between A and B, the original buyer 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.

The pre-completion transaction is not an assignment of rights so paragraph 13 applies.

C’s acquisition from B is one which has completed without prior substantial performance. The consideration is taken to include the consideration given for the free-standing transfer, although that is nil in this case. So the consideration is just the £400,000 paid by C to B in the normal way.

In the absence of any special provision, B is regarded as entering into a land transaction with A for consideration of £1m.

The pre-completion transaction is a qualifying sub-sale if the relevant conditions are met. B can therefore claim relief (subject to complying with the specific relief rule and not meeting the conditions that would trigger the relief TAAR). Since the sub-sale relates to only part of the subject-matter of the original contract, B cannot claim full relief. Instead, the consideration for the transaction is reduced by the amount of the £1m consideration that relates to Plot 2. In this case that is £400,000 so the B’s consideration is reduced to £600,000.

Example 5 - Sub-sales and linked transactions

This is an example of how the rules apply to a sub-sale relating to only part of the land under the original contract, and how the linked transaction rules apply where the parties are connected.

  • A enters into a sale and purchase agreement with B for the freehold of some non-residential 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 enters into a sub-sale agreement to sell Plot 2 to C for £400,000.
  • B and C are connected
  • At a single completion meeting, the sales from A to B and from B to C are completed; consideration of £400,000 is paid by C to B and consideration of £1m is paid by B to A.

B must make a land transaction return for the land transaction with consideration, on first principles, of £1m but can include a claim for partial relief reducing the consideration to £600,000.

Because B and C were connected, C’s acquisition is subject to the minimum consideration rules (paragraphs 15-17). In this example, the apportionment of £600,000 / £400,000 between Plot 1 and Plot 2 is fair and reasonable. Under the minimum consideration rules, the first minimum amount and second minimum amount are both £400,000 in this example. This is the same as the amount that the consideration would be under the normal rules. The chargeable consideration for C’s acquisition is therefore £400,000.

Even though C is purchasing from B, for the purposes of the legislation, the seller for C’s acquisition is A, as per paragraph 14(2) (see also 14(5)). This means that the two transactions (between A and B, and B and C) are linked for the purposes of Section 8(1) of LTTA2017. Therefore, the tax for each return (using the bands and rates in force as at 01/04/2018) must be calculated as follows:

  • The total chargeable consideration for both transactions is £1,000,000 (A can claim partial relief of £400,000, reducing the consideration from B to A to £600,000. Add to this the £400,000 C must pay to B, gives a total of £1,000,000) 
  • The total tax chargeable against £1,000,000 using the non-residential bands and rates is £38,500
  • B must file a return showing tax of £38,500 / £1,000,000 X £600,000 = £23,100
  • C must file a return showing tax of £38,500 / £1,000,000 X  £400,000 = £15,400
  • Both returns must show A as the seller

Example 6 - Series of assignments

This example covers a number of slightly different scenarios involving a series of assignments of rights.

In the first scenario, the final transferee pays an additional amount of consideration.

  • A enters into a sale and purchase agreement with B for some land with a consideration of £1 million. B pays A a deposit of £100,000.
  • B assigns its rights to C for £100,000 and C assigns its rights to D for £150,000.
  • D pays A £900,000 on completion.

D is chargeable as the transferee. The chargeable consideration is £900,000 plus £150,000 totalling £1,050,000, that is the total consideration given by D.

Paragraph 8 applies in the following way. The acquisition by D is ‘the transferee’s land transaction’ (paragraph 8(1)(a)). The assignment from C to D is ‘the implemented assignment of rights’ (paragraph 5(3)). B is the buyer under a notional land transaction (paragraph 8(1)). C is the buyer under an additional land transaction (paragraph 8(3)).

The chargeable consideration for B’s transaction – the notional land transaction – is given by paragraph 8(6)(a). It is the £100,000 paid by B to A (amount ‘B’ in paragraph 8(8)) plus the £900,000 paid by D to A on completion (amount ‘A’ in paragraph 8(7)(b)) totalling £1m. B can claim relief.

The chargeable consideration for C’s transaction – an additional land transaction – is given by paragraph 8(6)(b). It is the £100,000 paid by C to B (amount ‘C’ in paragraph 8(9) – in calculating amount C, ‘the preceding assignment of rights’ was the assignment from B to C (paragraph 8(10)) plus the £900,000 paid by D to A on completion (amount ‘A’ - paragraph 8(7)(b)) totalling £1 million. C can claim relief.

In the second scenario, D pays less.

  • A enters into a sale and purchase agreement with B for some land with consideration of £1 million. B pays A a deposit of £100,000.
  • B assigns its rights to C for £100,000 and C assigns its rights to D for £50,000.
  • D pays A £900,000 on completion.

D is chargeable as the transferee. The chargeable consideration is £900,000 plus £50,000 totalling £950,000, that is the total chargeable consideration given by D.

The position of B and C is the same as in the previous scenario.
 
In the final scenario, there is a series of assignments of rights where D is connected with C. In this example, C gets a good deal from B in an entirely commercial transaction.

  • A enters into a sale and purchase agreement with B for some land with consideration of £1 million. B pays A a deposit of £100,000.
  • B assigns its rights to C for £50,000 and C assigns its rights to D for nil. C and D are connected.
  • D pays A £900,000 on completion.

D is chargeable as the transferee. The chargeable consideration is £900,000 plus nil totalling £900,000. But the minimum consideration rule applies. Both the first and second minimum amounts are £950,000 (see below) so D is chargeable on £950,000.

The position of B and C is similar to the earlier examples.

The first minimum amount is given by paragraph 16(3). C is the transferor (‘T’) (‘Condition B’ in paragraph 16(3)) and C is also ‘the first T’. Paragraph 16(3) picks up only the £50,000 paid by C to B plus the £900,000 payable on completion, and not the full £1 million under the contract between A and B.

The second minimum amount is given by paragraph 17. The relevant parties are C and D, not B (paragraph 14(4)). The net amount of consideration given by D is £900,000 and the net amount of consideration given by C is £50,000 (paragraph 17(2)). The second minimum amount is also £950,000.

Example 7 - Series of sub-sales

This is an example of a series of sub-sales.

  • A enters into a sale and purchase agreement with B for some land with consideration of £1 million. B pays A a deposit of £100,000.
  • B enters into a sub-sale agreement with C for £1m, with C paying a deposit of £100,000.
  • C enters into a sub-sale agreement with D for £1.1m, with D paying deposit of £200,000 to C.
  • The contracts are completed together. On completion, D pays C £900,000, C pays B £900,000, and B pays A £900,000.

B and C are chargeable on £1m according to the normal rules as they have completed (without prior substantial performance) their contracts. They can claim relief. D is chargeable on £1.1m.

Example 8 - Exchanges – assignments

  • A enters into a sale and purchase agreement with B for Plot 1 with consideration of £1m which reflects the market value of Plot 1. B pays A a deposit of £500,000.
  • B assigns its interest under the contract to C in return for consideration of Plot 2 from C. Plot 2 is worth £400,000. This is acceptable to B because the site of Plot 2 is commercially beneficial to B.
  • On completion, C pays A £500,000 for Plot 1.

C has entered into one transaction as buyer (the acquisition of Plot 1 by C) in consideration of entering into another transaction as seller in another (the acquisition of Plot 2 by B). The exchange rules therefore apply.

B is chargeable on a notional land transaction for which relief can be claimed. The chargeable consideration is £1m.

B is chargeable on the acquisition of Plot 2 from C. The chargeable consideration is determined by paragraph 5 of Schedule 4. This is the market value of Plot 2 (£400,000). That amount cannot be apportioned in any way as it was not given for anything other than as consideration for Plot 2. So the chargeable consideration is £400,000.

C is chargeable on the acquisition of Plot 1. The chargeable consideration is given by paragraph 5 of Schedule 4. The market value of Plot 1 is £1m. Paragraph 1 of Schedule 4, read according to paragraph 8 of Schedule 2, would give chargeable consideration of £900,000 – the £500,000 given by C to A on completion plus the consideration given for the assignment, namely the £400,000 market value of Plot 2 (paragraph 8(7)).

Example 9 - Exchanges – sub-sales

  • A enters into a sale and purchase agreement with B for Plot 1 with a consideration of £1m which reflects the market value of Plot 1. B pays A a deposit of £500,000.
  • B enters into a sub-sale agreement for Plot 1 with C, for consideration of £500,000 cash plus Plot 2. Plot 2 has a market value of £400,000. This is acceptable to B because the site of Plot 2 is commercially beneficial to B. The agreements are completed at the same time and in connection with each other.

C has entered into one transaction as buyer (the acquisition of Plot 1 by C) in consideration of entering into another transaction as seller in another (the acquisition of Plot 2 by B). The exchange rules therefore apply.

B is chargeable on the acquisition of Plot 1 from A but can claim relief.

B is also chargeable on the acquisition of Plot 2 from C. The chargeable consideration is determined by paragraph 5 of Schedule 4. This is the market value of Plot 2 (£400,000).

C is chargeable on the acquisition of Plot 1. The chargeable consideration is given by paragraph 5 of Schedule 4. The market value of Plot 1 is £1m, the chargeable consideration is therefore £1m.

Example 10 - Acquisition by a connected company

  • A enters into a sale and purchase agreement with B for some land with a consideration of £1m which reflects the market value of the land. Completion is set for 2 years after the agreement is entered into.
  • After one year, the market value of the land has increased to £1.1m. B enters into a sub-sale agreement with C for consideration of £900,000. C is a company connected with B. Both agreements are completed at the same time and in connection with each other.

B is chargeable on its acquisition of the land and can claim relief.

C is chargeable on its acquisition of the land. In the first instance, the chargeable consideration given by paragraph 13 (as it applies to paragraph 1 of Schedule 4) is £900,000.

The deemed market value rule in section 53 does not apply because the seller for C’s acquisition is A (paragraph 10(4)). So the chargeable consideration is not increased to £1.1m.

However, B and C are connected, so the minimum consideration rule applies to increase the chargeable consideration for C’s acquisition from £900,000 given to £1m.

Example 11 - Partnerships

  • A enters into a sale and purchase agreement with B for some land with a consideration of £1m which reflects the market value of the land.
  • B enters into a sub-sale agreement with C for consideration of £1m. C is a partnership in which B has a 90% partnership share. The 2 agreements complete at the same time and in connection with each other.

B is chargeable on its acquisition of the land and can claim relief.

C is chargeable on its acquisition of the land. The chargeable consideration given by paragraph 13 (as it applies to paragraph 1 of Schedule 4) is £1m. C does not get the benefit of the rules for special partnership transactions in Part 3 of Schedule 15 because the seller for C’s acquisition is A (i.e. not a partner in the partnership).

Example 12 - Novation

This is an example of how the rules apply to a novation.

  • A enters into a sale and purchase agreement with B for some land with a consideration of £1 million payable on completion.
  • A, B and C enter into a deed of novation under which: C replaces B as the buyer of the land; and C pays B £100,000 in consideration for B relinquishing its rights under the first contract. Under the deed, A and B are released from any obligations to each other. Following the deed of novation, the original contract between A and B no longer exists. It has been replaced by a new contract between A and C.
  • C completes the new contract to acquire the land from A and pays A £1m.

The novation is a pre-completion transfer because it is a free-standing transfer. It is not an assignment of rights because C’s right to call for a transfer is not a right under the original contract, it is a right under the new contract. C is not regarded as entering into a land transaction by reason of the novation.

On completion, C is the buyer under a land transaction. The chargeable consideration under paragraph 13 is £1.1m.

B is not the buyer under a land transaction so is not required to file a land transaction return and has no need to claim relief.

LTTA/2240 Options and rights of pre-emption

(section 15)

The acquisition of an option binding the grantor to enter into a land transaction or a right of pre-emption preventing the grantor from entering into a land transaction (or restricting their right) is also a land transaction.

When an option or right of pre-emption is granted, that land transaction is distinct from (but almost certainly linked to) the land transaction which is effected on the exercise of that option or right of pre-emption. The effective date of the transaction is the date of the grant of the option or right of pre-emption.

An option or right of pre-emption is not a major interest, although it is a chargeable interest.

An option to buy land is a right granted by the land owner to a prospective buyer to acquire the land. The option will often include the payment of a fee and set a time limit during which time that option will run.  It is a right over land as the person granted the right can demand that the land be sold (to them).

A right of pre-emption is also known as a right of first refusal. The land owner must offer the property for sale to the holder of the right of pre-emption before offering it for sale to any other person.

Where an option has been granted, with consideration given for the grant of that option, and the option is exercised, the land transaction on the grant of the option and the land transaction on exercise of the option will be linked transactions.

LTTA/2250 Exchanges

(section 16 and paragraph 5 of Schedule 4)

An exchange (that is an exchange of interests in land) occurs when a land transaction is entered into by a person (alone or jointly) as buyer wholly or partly, in consideration of another land transaction that they (alone or jointly) enter as seller and the respective land transactions are in whole or part given as consideration for the other land. The 2 transactions are treated as separate and distinct from each other and are not linked transactions.

The rules for establishing the chargeable consideration given are available at LTTA/2260.

The rules in relation to a partition of land are available at LTTA/2360.

There are also special rules in relation to arrangements involving public or education bodies.