Sub-Sales

A contract to sell land is only a land transaction subject to SDLT if it is completed or substantially performed by the purchaser.  Substantial performance is where the purchaser 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/the first payment of rent is made.

If party A contracts to sell land to party B and party B contracts to sell to party C, if C’s acquisition is made at the same time as and in connection with the contract between A and B, that original contract is disregarded and party B will not be subject to a charge to SDLT.  The key point is that party B must not complete or substantially perform their contract before the on-sale contract is completed or substantially performed.

Similar provisions provide relief for party B on the assignment of an agreement for lease.

The stamp office have introduced additional complexity to block the use of sub-sale in certain situations.  A general anti-avoidance rule was enacted with effect from 6 December 2006 with a primary purpose of blocking sub-sale avoidance.  Further legislation prevents a circumvention of the substantial performance rules by developers taking possession of a site under a building licence (previously the absence of an agreement for a land transaction prevented a charge to SDLT from arising).

Although sub-sale planning has been significantly eroded by the stamp office, the effect of the anti avoidance provisions must be considered on a case by case basis.  Structuring techniques remain available to avoid the application of the anti-avoidance rules to effect SDLT efficient sub sale structures.

For more information please email jfeaster@edftax.co.uk or call 07526 003021 to speak to John.