Stamp Taxes Planning

Sub-sale arrangements occur where A contracts to sell to B, then B contracts to sell to C, with completion of both contracts simultaneously and title passing directly from A to C. Without relief, B would face an SDLT charge even though B never actually takes title.

Sub-sale relief (s.45 FA 2003):

• Allows B's intermediate purchase to be DISREGARDED for SDLT purposes
• Only one SDLT charge applies — on the FINAL sale (to C)
• Saves the SDLT that would otherwise be payable on B's notional acquisition
• Subject to strict conditions and anti-avoidance provisions

Conditions for sub-sale relief:

• The original contract (A to B) has not been "substantially performed"
• B assigns the rights to C (or a separate parallel contract runs)
• B and C are not "connected" in a way that would trigger anti-avoidance
• Transaction is commercial, not designed primarily to avoid SDLT

Post-2013 tightening:

• Historical abuses: repeated sub-sale schemes creating indefinite deferrals
• Post-2013 rules restrict sub-sale relief to GENUINE sub-sales
• s.45 relief still available but HMRC scrutinises carefully
• Multi-step schemes: anti-avoidance (s.75A) may re-characterise overall transaction

Worked example — sub-sale relief:

Developer A contracts to sell a commercial building to Investor B for £5 million. Before completion, B finds a buyer C who will pay £5.5 million. B and C enter a contract; A, B, and C complete simultaneously (title A → C; £5.5m paid by C; A receives £5m; B receives £500k profit).

Without sub-sale relief:

• B acquires building (SDLT on £5m at non-residential: £0 + £100,000 × 2% + £4,850,000 × 5% = £2,000 + £242,500 = £244,500)
• C acquires building (SDLT on £5.5m: £0 + £100,000 × 2% + £5,350,000 × 5% = £269,500)
• Total SDLT: £514,000

With sub-sale relief (s.45 applies):

• B's intermediate purchase DISREGARDED
• Only C's purchase taxed: £269,500
• SAVING: £244,500

Planning considerations:

• Simultaneous completion essential
• Document the commercial rationale
• Watch for anti-avoidance: schemes using sub-sale relief repeatedly may trigger s.75A
• HMRC reviews: if B takes possession or substantially performs before onward sale, relief fails

Partnerships have special SDLT rules because partners (especially connected persons) share economic interests that complicate the normal "market value on transfer" approach.

Schedule 15 FA 2003 — three main partnership rules:

1. Transfers of property INTO partnership (from a partner):

• A partner transfers property to the partnership
• SDLT on "relevant consideration" × (1 − SLP)
• SLP = "sum of lower proportions" — reduces SDLT where connected partners have existing interests
• Rationale: no real change in economic ownership if the same person(s) effectively own both the property and the partnership

SLP calculation:

• For each partner (including the transferor): take the LOWER of:
  • Their PRE-transfer ownership in the property (or 0 if not a pre-owner)
  • Their PARTNERSHIP SHARE that counts (based on profit share)
• Sum these lower proportions for all partners
• Result: fraction of property value not subject to SDLT
• Only UNCONNECTED partners count — the "partnership share that counts" rules exclude connected parties in specific ways

Worked example:

Alice owns a commercial property worth £1m outright. She transfers it into a new partnership with her son Ben (50/50 partners). Assume no connection for SDLT (unrealistic — a parent-child connection may affect the calculation; but for illustration).

• Pre-transfer ownership: Alice 100%; Ben 0%
• Partnership shares: Alice 50%; Ben 50%
• SLP: Alice = min(100%, 50%) = 50%; Ben = min(0%, 50%) = 0%
• SLP total = 50%
• SDLT on consideration × (1 − 50%) = consideration × 50%
• If "relevant consideration" taken as £1m MV: SDLT on £500k at non-residential: £0 + £100k × 2% + £400k × 5% = £22,000
• Compare to full SDLT on £1m: £39,500
• Saving: £17,500 from SLP reduction

2. Transfers of property OUT of partnership (to a partner):

• Mirror rule — SDLT reduced by SLP of partners other than transferee
• Complex anti-avoidance where transfer is part of broader arrangement

3. Transfers of PARTNERSHIP INTERESTS:

• Transfer of a partnership interest where partnership owns UK property
• SDLT applies as if there were a transfer of the underlying property (proportional to the interest transferred)
• Anti-avoidance: prevents circumventing SDLT on property by simply transferring partnership interests

Planning opportunities:

• Structuring family property through partnerships to use SLP reductions
• Moving property between family members via partnership with minimal SDLT
• Careful: anti-avoidance (s.75A) may catch aggressive schemes

"Partnership transparency": for CGT/IT purposes, partnerships are tax-transparent (partners taxed individually on their share). For SDLT: partnership transactions have specific rules as described. Not fully transparent for SDLT.

SDLT Group Relief (Schedule 7 FA 2003):

Transfers of UK property between 75% GROUP COMPANIES can be EXEMPT from SDLT on a claim.

Key conditions:

• Transferor and transferee are both UK companies (or treated as such)
• One is a 75% SUBSIDIARY of the other, OR both are 75% subsidiaries of a common parent
• Group relationship exists at the effective date of the transaction
• Transfer is not part of a tax avoidance scheme

The 75% group test:

• Parent owns ≥ 75% of ordinary share capital of subsidiary
• Parent is beneficially entitled to ≥ 75% of profits available for distribution
• Parent is beneficially entitled to ≥ 75% of assets on a winding up
• Indirect holdings counted proportionally

Anti-avoidance / clawback:

• If transferee COMPANY LEAVES THE GROUP within 3 years of transfer: relief CLAWED BACK
• SDLT becomes payable on the original consideration
• Exception: transferee still holds property when leaving (no "degrouping charge" for SDLT in certain cases)
• No clawback if leaving is due to an event OUTSIDE the group's control (limited exceptions)

Common uses of group relief:

• Restructuring: moving properties within a group of companies
• Incorporation of a business from one group company to another
• Preparation for sale: moving assets to "clean" subsidiary for sale (but beware clawback if sale triggers degroup)
• Migration of assets: consolidation to group property company

Planning to AVOID clawback:

• Property should remain in the group for at least 3 years after transfer
• Pre-sale structuring: if selling the transferee subsidiary, delay 3 years OR structure as a sale of the parent (so property stays in a group that's being transferred as a whole)
• Consider SDLT impact BEFORE any restructuring

SDLT Charity Relief (s.68 FA 2003):

• PURCHASES BY CHARITIES are EXEMPT from SDLT on a claim
• Conditions: purchaser is a registered charity; property will be used for charitable purposes
• Unlimited — no cap on size of relief

Clawback of charity relief:

• If the property ceases to be used for charitable purposes within 3 years: relief CLAWED BACK
• Charity may be partly funded by non-charitable activities — partial clawback possible
• If the charity CEASES to exist: relief clawed back (different from ceasing to use for charitable purposes)

Worked example — group relief and clawback:

HoldCo owns 100% of both SubA and SubB (both UK companies). SubA owns a commercial property worth £3m. HoldCo plans to sell SubA to a third party next year.

Option 1: Sell SubA directly (property stays in SubA).

• Sale of SubA shares — no SDLT on property (shares sold at stamp duty on shares at 0.5%)
• SDLT NOT triggered by simply changing SubA's ownership
• Clean transaction; buyer takes the company with the property intact

Option 2: Transfer property from SubA to SubB first (group relief applied); then sell SubA.

• Property transfer SubA → SubB: group relief applied. No SDLT. (SubA and SubB both subsidiaries of HoldCo)
• Sale of SubA: at some point (within 3 years). SubA leaves group.
  • Does SubA now own the property? No — property was transferred to SubB first. SubA has nothing to claw back.
  • Does SubB leave the group? No. Group relief stands on SubB's acquisition.
• Outcome: no SDLT anywhere. Clean restructuring.

Option 3: Transfer property from SubA to SubB (group relief); then sell SubB within 3 years.

• Property transfer: group relief applied.
• Sale of SubB: transferee (SubB) leaves group within 3 years → CLAWBACK of SDLT on the property transfer.
• SDLT on original MV £3m: £269,500
• Payable by the buyer of SubB? No — typically clawed back from the transferee (SubB itself), which has new ownership. Indemnity provisions in sale docs essential.

Lesson: Always plan the 3-year horizon after any intra-group transfer. If sale imminent: structure to keep transferred property in the remaining group, OR accept that clawback will occur.

Residential SDLT offers several planning opportunities — but also many traps.

1. Managing HRAD (Higher Rates for Additional Dwellings):

• 5% surcharge on additional residential property (since 31 October 2024)
• NOT applied when replacing main residence (old sold within 3 years before or after)

Planning strategies:

• Sell main home FIRST: before completing new purchase → no HRAD cashflow hit
• Sell main home AFTER new purchase: pay HRAD initially, claim refund within 3 years of sale
• Transfer ownership of OLD home to spouse: if one spouse doesn't own other property → beneficial for HRAD qualification (but triggers other CGT/SDLT issues)
• Timing of completion: push or pull by days/weeks to manage tax-year and other considerations

2. First-time buyer relief — cliff edge:

• Available up to £625,000 purchase price
• Above £625,000: NO RELIEF (not even on the first £425k)
• Cliff edge planning: if purchase near £625k, negotiate price down to stay within relief
• A £625,000 purchase gets £10,000 SDLT (FTB rates); a £630,000 purchase gets £19,000 (standard rates) — £9,000 difference for £5,000 more

3. Mixed-use designation:

• Mixed-use property (residential + commercial) taxed at NON-RESIDENTIAL rates (0%/2%/5%)
• Significantly lower than residential rates at higher amounts
• Common for farms with farmhouses, shops with flats, guesthouses, pubs with accommodation
• HMRC scrutinises claims — commercial element must be SUBSTANTIAL (not token)

Worked example — mixed-use:

Property: £1,200,000. Comprises: main house (£900k) + detached cottage let to holidaymakers commercially (£300k).

• Argument: mixed-use (residential + commercial letting) → non-residential rates
• SDLT on £1.2m at non-residential: £0 + £100k × 2% + £950k × 5% = £49,500
• Compare residential rates: £0 + £675k × 5% + £275k × 10% = £61,250
• Saving: £11,750

HMRC may challenge if the commercial letting is minor or seasonal. Document the commercial rentals (accounts, marketing, separate use).

4. Multiple Dwellings Relief (MDR) abolition:

• ABOLISHED 1 June 2024 for new transactions
• Legacy claims for pre-June 2024 transactions still possible
• Major change for portfolio landlords — no longer can average dwelling values
• Some buyers may still argue mixed-use if part is genuinely commercial

5. Property through a company — ATED considerations:

• Companies buying residential property worth > £500k for non-trading/non-rental use: FLAT 15% SDLT (not progressive rates)
• Plus ATED (Annual Tax on Enveloped Dwellings): annual charge up to ~£290k (depends on value)
• Designed to discourage "envelope" structures for UK resi
• Exemptions for genuine trading (developer, rental business)

6. Non-resident surcharge:

• Additional 2% on residential property for non-UK residents (< 183 days in year of purchase — determined retrospectively)
• Stacks with HRAD if additional property: 5% + 2% = 7% on top of standard rates
• "Resident for SDLT" test: 183+ days in UK in the year prior to or following the transaction
• Can be "returning UK resident": if you come to UK within 12 months of completion, can claim refund

7. Trust structures:

• Property into a trust: SDLT applies on transfer at MV (unless relief)
• Bare trust: no SDLT if transferee has all beneficial ownership
• Discretionary/IIP trusts: normal SDLT; trust pays
• Trust structures for IHT planning must be assessed against SDLT impact of transfers in

Commercial property SDLT planning often intersects with VAT rules.

The key VAT interaction: option to tax (OTT) and SDLT on VAT-inclusive amount.

• If seller has OTT on commercial property: VAT charged at 20%
• SDLT calculated on the VAT-INCLUSIVE price
• Buyer pays SDLT on the VAT element — even if VAT is recoverable via input tax
• Example: £1m commercial property + £200k VAT (OTT) → SDLT on £1.2m
• If buyer can recover VAT: the VAT is a cashflow cost only; but SDLT on it is a REAL cost

Planning to mitigate:

• Buyer opts to tax BEFORE purchase AND uses TOGC provisions: VAT neutralised on transfer (TOGC → no VAT); SDLT base reduced to price only
• Alternatively: if seller's OTT is "locked in" (> 6 months, not revocable), accept the SDLT uplift

Planning example — commercial property with OTT:

Seller has opted to tax. Commercial property £2m + £400k VAT = £2.4m gross.

Scenario A: Ordinary sale, no TOGC.

• Buyer pays £2.4m; VAT £400k recoverable via input tax
• SDLT on £2.4m at non-residential: £0 + £100k × 2% + £2.15m × 5% = £109,500
• Real SDLT cost (non-recoverable): £109,500

Scenario B: Transaction qualifies as TOGC (business sold with property).

• Buyer must opt to tax (to maintain TOGC for property element)
• No VAT charged on transfer
• SDLT on £2m only: £0 + £100k × 2% + £1.75m × 5% = £89,500
• SDLT saving: £20,000
• Plus: avoidance of £400k VAT cashflow (even if recoverable)

Lease grants — SDLT on rent:

• Grant of a lease triggers SDLT on:
  • Any PREMIUM paid (at non-residential rates)
  • NPV of rents over lease term (separate NPV rate bands)
• NPV bands (commercial): 0% up to £150k; 1% £150k-£5m; 2% above £5m
• Calculate NPV at HMRC prescribed discount rate (3.5% per annum)

Lease planning — shorter vs longer term:

• Longer leases: higher NPV → higher SDLT
• But shorter leases → more frequent renewals → cumulative SDLT
• Staged rent (e.g., increases over time) or rent reviews: included in NPV calculation
• RPI-linked rents: use estimated increases in NPV calculation

TOGC conditions reminder:

• Transfer of business (or part capable of separate operation) as going concern
• Same kind of use continues without break
• Both parties VAT-registered (or buyer becomes so)
• If property with OTT: buyer MUST also opt to tax by transfer date

Planning checklist for commercial property:

1. Is seller's VAT position known? (OTT registered?)
2. Is this a TOGC opportunity? (selling business + property)
3. If TOGC: buyer to opt to tax; document TOGC criteria met
4. Calculate SDLT on net of VAT if TOGC; on gross if not
5. For leases: compute NPV of rent using correct discount rate; include all rent increases
6. Consider Capital Goods Scheme (CGS): buyer may inherit seller's adjustment obligations for 10-year period

Stamp duty on shares and SDRT have several important reliefs that enable tax-efficient restructuring.

Section 42 FA 1930 — Intra-group relief (stamp duty on shares):

• Transfers of shares between associated companies EXEMPT from stamp duty
• "Associated": one is 75%+ subsidiary of the other, or both are 75%+ subsidiaries of a common parent
• Applies to the 0.5% stamp duty and to SDRT
• Adjudication by HMRC required (formal claim)
• Anti-avoidance: not available if part of tax avoidance scheme

Section 77 FA 1986 — Reconstruction relief (share-for-share exchanges):

• EXEMPTS stamp duty on share-for-share exchanges as part of a SCHEME OF RECONSTRUCTION
• Applies when: Company A's shareholders receive shares in Company B in exchange for their Company A shares
• Conditions (similar to s.136 TCGA for CGT):
  • No change in shareholders' EFFECTIVE OWNERSHIP
  • All shareholders of a class treated equally
  • Commercial purpose
  • Not for tax avoidance
• Combined with s.135 TCGA (CGT relief) — the two reliefs commonly work together

Application to corporate transactions:

• Takeover where B acquires A shares for B shares: s.135 TCGA (no CGT) + s.77 FA 1986 (no stamp duty)
• Interposing a holding company: both reliefs apply
• Demerger: share exchange elements covered

Section 75 FA 1986 — Acquisition relief (for transactions in securities):

• Relief for certain company reconstructions where assets move between companies
• Used in conjunction with other reconstruction reliefs

AIM exemption (since April 2014):

• Transfers of AIM-listed shares: EXEMPT from SDRT and stamp duty
• Significant for smaller companies on the Alternative Investment Market
• Benefits: easier ownership transfers; improves liquidity of AIM stocks
• Reduces overall cost of capital for AIM-listed companies

Unit trust and OEIC exemptions:

• Subscription to and redemption of authorised unit trusts / OEICs: no SDRT
• Applies to typical collective investment schemes
• Makes fund investments more tax-efficient

Gilts and corporate bonds:

• UK government bonds (gilts): EXEMPT from stamp duty / SDRT
• Most corporate bonds: EXEMPT (unless they qualify as shares in a tax sense)
• Important for fixed-income trading

Transfers on death, gifts, charity:

• Transfers on death (to PRs or beneficiaries): NO stamp duty / SDRT
• Gifts (no consideration): no stamp duty / SDRT
• Transfers to charities: exempt

Worked example — share reconstruction:

OldCo is replaced by NewCo (same shareholders). Each OldCo shareholder receives 1 NewCo share for each OldCo share held. Total share value £10m.

Without relief:

• Stamp duty on share transfers at 0.5% = £50,000
• Possibly SDRT too (if electronic settlement)

With s.77 FA 1986 reconstruction relief:

• Conditions met: no change in ownership; commercial purpose; all shareholders treated equally
• Relief claimed: £0 stamp duty
• Plus s.135 TCGA: no CGT for shareholders
• Plus s.139 TCGA: any asset transfers within group at no gain/no loss

Clearance procedure:

• Advance clearance under s.701 ITA 2007 available
• Combine with s.138 TCGA clearance for the CGT side
• HMRC typically responds within 30 days
• Clearance gives certainty on relief availability

Section 75A FA 2003 — SDLT General Anti-Avoidance:

• Targeted anti-avoidance rule (TAAR) for SDLT
• Applies where multiple "scheme transactions" are connected and the overall effect is an SDLT advantage
• Reconstructs the TOTAL EFFECT as a single SDLT transaction, calculating SDLT on the full value
• Broad scope — catches many artificial arrangements

How s.75A operates:

• If 2 or more linked transactions result in the SAME property ending up with a particular buyer, but at less SDLT than direct acquisition would have cost
• HMRC reconstructs: TREATS the sequence as a single direct transaction
• SDLT calculated on the "notional" consideration
• Difference between actual SDLT paid and reconstructed SDLT: payable to HMRC

Common s.75A triggers:

• Sub-sale schemes designed to reduce SDLT (beyond the legitimate s.45 sub-sale relief)
• Pre-contract arrangements involving property entering and leaving partnerships
• Multi-step acquisitions via companies set up specifically for the purpose
• "Grannies" (grandfather-type) schemes using connected parties

GAAR (General Anti-Abuse Rule):

• Statutory GAAR applies to SDLT and stamp duty on shares (as well as other taxes)
• "Double reasonableness test" — arrangements are abusive if they cannot reasonably be regarded as a reasonable course of action
• 60% penalty for GAAR-affected arrangements
• Independent GAAR advisory panel reviews cases

DOTAS / POTAS for stamp taxes:

• DOTAS (Disclosure of Tax Avoidance Schemes): specific hallmarks for SDLT schemes
• Promoters and sometimes users must disclose arrangements to HMRC
• POTAS (Promoters of Tax Avoidance Schemes): additional regime for problematic promoters
• Penalties for non-disclosure

SDLT enablers legislation:

• Enablers of DEFEATED tax avoidance schemes face penalties
• Applies to advisors, promoters, intermediaries
• Professional responsibility to refuse involvement in aggressive schemes

Historical SDLT "avoidance industry":

• 2000s-2010s: significant industry of SDLT schemes (partnerships, sub-sales, options)
• Most defeated by HMRC + anti-avoidance rules
• s.75A enacted specifically to counter these
• Resulting pushback: PCRT standards discourage such schemes
• Current landscape: much more conservative; genuine commercial restructuring the focus

Examples of arrangements likely CAUGHT by anti-avoidance:

• Putting property into a partnership with artificial partners, then distributing
• Sub-sale schemes with multiple purposes and short periods
• Connected-party transactions designed to reduce SDLT below a "direct" transaction
• Sale + leaseback purely for SDLT reduction (though genuine leasebacks may be fine)

Examples of GENUINE structuring (not caught):

• Buy-to-let owned through a company: commercial structure; SDLT + ATED payable but genuine
• Family partnership to manage succession (if genuine operating partnership, not tax-driven)
• Intra-group reorganisations with genuine commercial purpose (claim group relief)
• TOGC of property as part of business sale

Professional advice considerations:

• Advisers must apply PCRT Standard 4 — no creation/promotion of highly artificial schemes
• Document commercial rationale for all restructuring
• Advance clearances for major transactions (s.701 ITA, s.138 TCGA, s.1044 CTA, s.1091 CTA)
• Advise clients on risks of HMRC challenge under s.75A, GAAR
• Refuse involvement in aggressive planning — reputation and ethical standards