assignment of option sdlt

Back to basics: principles of stamp duty land tax

Personal tax.

Share this article

In a back to basics review of stamp duty land tax, we consider which transactions are chargeable, property purchases by UK resident and non-UK resident individuals, and corporate acquisitions.

What is the issue?

This article reminds us of the basic principles we need to bear in mind when considering stamp duty land tax on land transactions in England and Northern Ireland.

What does it mean for me?

Stamp duty land tax is applied to the acquisition of a chargeable interest in England and Northern Ireland for consideration or deemed consideration.

What can I take away?

Stamp duty land tax is payable within 14 days from the effective date of transaction. ‘Effective date’ is when the contract is substantially performed. In most cases, this is completion.

With the ever-changing landscape in property taxes, this article reminds us of the basic principles we need to bear in mind when considering stamp duty land tax on land transactions in England and Northern Ireland. Land transactions in Scotland and Wales are covered by their own taxes.

All statutory references are to Finance Act 2003 unless otherwise stated.

Exempt transactions

Before we go into the detail behind how and when stamp duty land tax is charged, we must first look at those transactions which we can disregard for this purpose. Schedule 3 includes a specific list of exempt transactions. Some of the more common ones are:

• no chargeable consideration (except for cases where s 53 applies);
• transactions in connection with divorce;
• assents and appropriations by personal representatives; and
• variation of testamentary dispositions.

It is normally pretty clear whether or not stamp duty land tax is expected to be payable on a transaction. It is, however, always worth checking that the exemptions can be applied.

Chargeable transactions

Stamp duty land tax is applied to the acquisition of a chargeable interest in England and Northern Ireland for consideration or deemed consideration. Chargeable interest is defined within s 48 to mean:

a) an estate, interest, right or power in or over land in England or Northern Ireland; or

b) the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power other than an exempt interest.

An exempt interest is any security interest (i.e. a mortgage), a licence to use or occupy land, a tenancy at will, an advowson (right to appoint a clergyman or vicar), franchise or manor.

A right over land can include an option (s 48 explains this further) and overage therefore it is not just the ‘normal’ sale of the land itself or long leases.

Consideration

Chargeable consideration (Sch 4), except where expressly stated, is any consideration in money or money’s worth given for the transaction. This can be either directly or indirectly by the purchaser or a person connected with them (Sch 4 para 1). Stamp duty land tax is chargeable on the VAT inclusive price (Sch 4 para 2). This will largely be relevant for non-residential transactions only. The timing of the transaction and any option to tax election on the specific property will be important to determine if VAT should be considered. Where the transaction is deemed to be taking place at market value, then this will not include any VAT.

For circumstances where non‑monetary consideration is applied, the value for this is its deemed market value. Non-monetary consideration can include fees, carrying out works or services (see Example 1: A transaction where consideration is not wholly money ). Special rules apply in circumstances including, but not limited to:

• where a repayment or assignment of debt forms part of the transaction (Sch 4 para 8) (See Example 2: Repayment or assignment of debt forms part of the transaction );
• in the event of contingent consideration (s 51);
• where the purchaser is a company and the vendor is connected with them – deemed market value (s 53). ‘Connected’ is defined under Corporation Tax Act 2010 s 1122.

Linked transactions

Where transactions are linked, the total aggregate consideration is calculated to work out any stamp duty land tax payable (s 108). Transactions are linked for the purpose of stamp duty land tax where they form part of a single scheme, arrangement or series of transactions between the same vendor and purchaser or persons connected with them. (Again, connection is defined in Corporation Tax Act 2010 s 1122.)

There is no time limit for these rules to apply. A transaction between the same vendor and purchaser could be linked even if they had taken place over 20 years apart. An important question to ask is: ‘Would the transactions have taken place independently of each other?’ Linked transactions are more likely to apply if the purchase price for one property has been discounted due to the acquisition of a second.

For properties acquired at auction we can look to the case Cohen & Anor [1936] 2 KB 246, which states these will not constitute a larger transaction or series of transactions.

Due date for payment

Stamp duty land tax is payable within 14 days from the effective date of transaction. ‘Effective date’ is when the contract is substantially performed. In most cases, this is completion; however, this is not always the case. ‘Substantially performed’ is defined in s 44(5) as when:

• the purchaser (or a person connected with the purchaser) takes possession of the whole, or substantially the whole, of the subject matter of the contract; or
• a substantial amount of consideration is paid or provided.

Things to note here are:

• A contract must exist for the effective date to be earlier than completion.
• Possession can include the receipts of rents or profits or rights to receive them (s 44(6)).
• When looking at a transaction involving rent, substantial amount can include the first payment of rent (s 44(7)).
• For non-rent-based transactions, HMRC guidance suggests 90% in the context of ‘substantially the whole’.

In circumstances where the vendor allows the purchaser to access the land, this could also bring forward the effective date.

Property purchases by UK resident individuals

The default position for residential purchases is that shown in s 55 (Table A). However, we must also look to Sch 4ZA to see whether the surcharge rate needs to be applied.

Residential property

Residential property is defined within s 116 as:

• a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use; and
• the land that forms part of the garden or grounds of such a building; or
• an interest in or right over land that subsists for the benefit of a building within (1) and (2) above.

The tests within the legislation refer to actual and suitability for use. The use for which the purchaser intends to apply after the transaction date is almost always irrelevant.

HMRC states that:

‘“Dwelling” takes its everyday meaning; that is a building, or a part of a building that affords those who use it the facilities required for day-to-day private domestic existence. In most cases, there should be little difficulty in deciding whether or not particular premises are a dwelling.’ (SDLTM 09750)

It goes on to say that a dwelling also includes buildings under construction that are being built or adapted for such use. Off-plan purchases can also count towards the definition of a dwelling.

Whilst it is easy to identify the garden, it is sometimes harder to identify the grounds. HMRC guidance state that:

‘“Garden or grounds” includes land which is needed for the reasonable enjoyment of the dwelling, having regard to the size and nature of the dwelling. This is usually question of fact depending on the individual circumstances of the case.’ (SDLTM 30030) [my emphasis]

HMRC has confirmed that land which was part of a residential property remains that way even if it is sold separately.

If at the effective date of transaction there is no longer a residential building as it is derelict or demolished, then those grounds and gardens are no longer residential. In order for the property not to be suitable for occupation as a dwelling, it cannot be physically habitable.

Rates of stamp duty land tax

The stamp duty land tax rates for the residential property acquisitions by UK resident individuals are shown in Table A: Rates of stamp duty land tax . Special exceptions to the surcharge rates exist where:

• The property purchased is not an additional dwelling.
• The property purchased is to replace the main home, even if the purchasers own an interest in another dwelling(s). Please note specific rules apply to other property interests which are inherited.
• The transaction is between spouses or civil partners if they are the only parties to the transaction and they are still living together.
• The purchaser is acquiring an additional interest in the same property to which they have an interest, and that property is their main residence.

Some key points to note:

• An overseas property will be classed as an interest in a residential property.
• A purchaser can look back up to three years from the effective date of transaction to see if a qualifying dwelling was sold and therefore the replacement home criteria has been met.
• A purchaser can claim a refund of the surcharge rate where they sell their former home within three years of the effective date of transaction of purchasing their new main residence.
• If the property is being acquired with another person, then the surcharge rate could apply to the whole transaction where they own an interest in another property and the main residence exemption does not apply to them.
• Spouses and civil partners are treated as one for the purpose of this part of the legislation. Even if one party to the relationship does not own another property, they will be treated as doing so if their spouse or civil partner does.
• Where trustees are acquiring properties the type of trust will impact the rate of stamp duty land tax payable.
• There are special rules of property transfers on divorce or dissolution of a civil partnership potentially restricting only one party being able to apply the replacement residence rules depending on the order of the transactions.

A good rule of thumb is to assume that the surcharge rate applies, unless you can prove otherwise.

Corporate acquisitions

Companies are always subject to the surcharge rate of stamp duty land tax for the purchase of a major interest in a dwelling.

Furthermore, the higher rate of stamp duty land tax (Sch 4A) could apply where consideration is in excess of £500,000. This means that 15% is initially charged on the whole consideration, not just the value in excess of £500,000.

Reliefs exist against this charge, but they need to be claimed. Where a claim can be made then the surcharge rates become due. Under Schedule 4A, these include:

• property rental business (para 5);
• business of trading in or redeveloping properties (para 5);
• making a dwelling available to the public (para 5B);
• financial institutions acquiring dwellings (para 5C);
• dwelling for occupation by certain employees (para 5D);
• flat occupied by a caretaker (para 5EA); and
• farmhouses (para 5F).

These reliefs can be withdrawn if the properties use changes within three years of the effective date of transaction, even if it is to another relievable activity.

Purchases by non-UK residents

The non-resident stamp duty land tax rules were introduced for property transactions with an effective date on or after 1 April 2021 (Sch 9A).

Where the purchaser is considered a non-UK resident, then an additional 2% rate is applied to the underlying residential property rates, as shown in Table B: Non-UK resident rates of stamp duty land tax . The rate of stamp duty land tax under Sch 4A is 17% for properties with consideration of more than £500,000. This is subject to the relevant reliefs being available.

Whether or not the purchaser is non-UK resident for stamp duty land tax purposes is judged based on the effective date of transaction. A non-UK resident for stamp duty land tax purposes is defined differently to the rules set out in the statutory residence test, used for the purpose of income tax and capital gains tax. Nationality or citizenship are not considered. Visa policies or the right to reside rules are not also relevant in these circumstances.

Where the property is acquired by more than one purchaser, then the non-resident rates of stamp duty land tax will apply if only one of them meets the non-UK residence tests. The only exception is for married couples or those in civil partnership where one party is UK resident (Schedule 9A part 5 para 12).

The tests for the main types of purchasers can be set out as follows:

Individual purchaser: An individual is considered non-UK resident if they are not present in the UK for at least 183 days in the 12 months before the purchase. An individual is UK resident where you are present in the UK at midnight (Sch 9A Part 3). Special rules exist for spouses and civil partners.

Trust: The residency position of the trustee is relevant. The exception being where the trust is a bare trust or the beneficiary is entitled to remain in the property for life or entitled to income arising from the purchased property. In these circumstances, the residency of the beneficiary is considered (Sch 9A Part 5 para 14).

Corporate purchaser: Corporate purchasers are considered non-UK resident if they are not UK resident for corporation tax purposes. This is a look back test only. Special rules exists under the company residency definition where a non-UK resident person directly or indirectly owns a UK company. Such companies are treated as non-resident in where the company:

• is a close company – the same definition as corporation tax is applied here;
• meets the non-UK control test in relation to the transaction; and
• is not an excluded company (Sch 9A Part 4)  

SDLT: option and pre-emption agreements

Practical law uk practice note 0-107-4839  (approx. 16 pages), get full access to this document with practical law.

Try free and see for yourself how Practical Law resources can enhance productivity, increase efficiency, and improve response times.

About Practical Law

This document is from Thomson Reuters Practical Law, the legal know-how that goes beyond primary law and traditional legal research to give lawyers a better starting point. We provide standard documents, checklists, legal updates, how-to guides, and more.

• Increase efficiency
• Enhance productivity
• Improve response time
• 1 Scope of this note
• 2 Introduction
• 3 Meaning of land transaction
• 4 Grant of option or pre-emption right
• 5 Exercise of option or pre-emption right
• SDLT rates on grant of option or pre-emption right
• SDLT rates on land transaction following exercise of option or pre-emption right
• Is the grant linked to the transaction arising on exercise?
• Is the transaction arising on exercise linked to the grant?
• 8 Options and pre-emption rights between connected companies
• 9 Reservation deposits
• Return for grant of option or pre-emption right
• Return for transfer of land pursuant to exercise of option or pre-emption right
• Further return for grant of option or pre-emption right if exercise linked to grant
• 11 Registration at HM Land Registry
• 12 Assignment, variation and release of options and pre-emption rights
• 13 Examples
• 14 Pre-1 December 2003 options and pre-emption agreements

Hold up! Access forbidden.

This website use security service to prevent unauthorized access and online attack. Your action might trigger the security solution. Please contact the site administrator to resolve this issue.

When will the assumption of debt be chargeable consideration?

Chargeable consideration , joint tenants , release or assumption of debt.

“1. Mummy and son own a BTL in equal shares. The Property is currently valued at approximately £300,000

2.  The value of the existing mortgage with Lender 1 is approximately £167,000

3.  Mummy will transfer her 50% share in the property to her son for nil consideration (gift) and son will simultaneously re-mortgage the Property in favour of a new Lender 2.

Given the above, in real terms the value of the gifted element will be our client’s 50% share of the Property (being £150,000) less 50% of the existing mortgage (being approximately £83,500), therefore making the total value of the gifted element as £66,500.

However, the existing debt, Lender 1, is classed as consideration. HMRC class the transaction as being an assumption of the outgoing party’s share of debt in the property (£83,500) by the transferee and therefore the redeemed charge is classed as an associated discharge. Whilst this figure is under the £125,000 threshold for SDLT, as the property is not the son’s main residence is he caught by the increased rate and does he have to pay 3% SDLT on the £83,500? Seems a little unfair to me, given that he has already paid stamp duty when he originally purchased the property. Is the transfer of equity considered a “purchase” for such purposes?”

Source: BLG Member

Yes the son will be liable for the 3%  surcharge on the 50% share he acquires.

Where there is the release or assumption of a debt (or the transfer of a property subject to a debt) the debt can constitute chargeable consideration for SDLT purposes.  The relevant provisions are in paragraph 8 of Schedule 4 FA 2003.

The basic rule is that where the consideration for a land transaction consists in whole or in part of:

1) the satisfaction or release of debt due to the purchaser or owed by the vendor (paragraph 8(1)(a)); or

2) the assumption of ‘existing debt’ by the purchaser (paragraph 8(1)(b)),

the amount of debt satisfied, released or assumed is taken to be the whole or, as the case may be, part of the chargeable consideration for the transaction.

1) debt is secured on the property immediately before and after the land transaction; and

2) the rights or liabilities of any party in relation to that debt are changed as a result of or in connection with the transaction,

there is taken to be an assumption of debt by the purchaser falling within paragraph 8(1)(b).

This is an anti-avoidance provision intended to prevent parties temporarily paying off secured debt before property is transferred and reinstating it immediately afterwards.

If there are two or more purchasers or vendors with undivided shares in the property the amount of secured debt treated as assumed is determined on the basis that the proportion of the amount owed by a person corresponds to the share that they own in the property subject to the debt.  For this purpose joint tenants are treated as owning the property in equal shares.

At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.

For more information on SDLT please see Ann’s Stamp Duty Land Tax Questions & Answers . This free resource covers a wide variety of SDLT queries and they can be filtered by subject to find specific queries of interest.

To be notified when new Q&As are published please sign up for alerts here.

Privacy Overview

Use "" to search for specific phrases.

60-260 Assignment of lease treated as grant

Certain grants of new leases are exempt from SDLT by virtue of relieving provisions. Without more, this would give scope for the avoidance of SDLT charged on lease rents under Sch. 5 , through the grant of a new lease to a related party (qualifying for the relief) who then immediately assigns that lease on to the real intended tenant. This manoeuvre is countered by the rule that the first assignment of a lease that is not exempt from charge by virtue of any of such relieving provisions, and in relation to which the assignee does not acquire the lease as a bare trustee of the assignor, is treated as if it were the grant of a lease by the assignor:

Need help? Get subscribed!

To subscribe to this content, simply call 0800 231 5199

We can create a package that’s catered to your individual needs.

Or book a demo to see this product in action.

• If there is a Quick Link page use it to see results selected by our experts.
• If search term is an exact phrase, use “quote marks” .
• Add another word or phrase to modify the search.
• Tick the box next to the product name in left panel to show only hits in that product (total hits indicated).

You are attempting to documents.

The maximum number of documents that can be ed at once is 1000. So your request will be limited to the first 1000 documents.

To make your more manageable, we have automatically split your selection into separate batches of up to 100 documents.

• Practical Law

Is SDLT chargeable on the assignment of a lease?

Practical law resource id 0-521-5057  (approx. 3 pages), get full access to this document with a free trial.

Try free and see for yourself how Practical Law resources can improve productivity, efficiency and response times.

About Practical Law

This document is from Thomson Reuters Practical Law, the legal know-how that goes beyond primary law and traditional legal research to give lawyers a better starting point. We provide standard documents, checklists, legal updates, how-to guides, and more.

650+ full-time experienced lawyer editors globally create and maintain timely, reliable and accurate resources across all major practice areas.

83% of customers are highly satisfied with Practical Law and would recommend to a colleague.

81% of customers agree that Practical Law saves them time.

• Landlord and Tenant
• Taxation - Land and Buildings
• Real Estate Finance and Investment
• SDLT and LTT

SDLT—common lease transactions

Published by a lexisnexis tax expert.

This Practice Note provides an overview of the stamp duty land tax (SDLT) treatment of the following common lease transactions:

grant of a lease

linked leases

surrender and re-grant of a lease

agreement for lease

assignment of an agreement for lease

reverse premium

assignment of a lease

variation of a lease

surrender of a lease

lease to a bare trustee or nominee, and

reversionary lease

For information on when SDLT applies generally, see Practice Note: Land transactions, chargeable interests and chargeable transactions and for details of how to calculate SDLT payable on lease transactions, see Practice Note: SDLT chargeable consideration—leases.

This Practice Note does not cover leases and holding over. For more on this topic, see Practice Note: SDLT and holding over.

SDLT ceased to apply to any land transaction involving any interests in or over land in Scotland from 1 April 2015. From that date, land and buildings transaction tax (LBTT) applies to such transactions, subject to transitional provisions. Consequently, references in this Practice

Access this content for free with a 7 day trial of LexisNexis and benefit from:

• Instant clarification on points of law
• Smart search
• Workflow tools
• 41 practice areas

** Trials are provided to all LexisNexis content, excluding Practice Compliance, Practice Management and Risk and Compliance, subscription packages are tailored to your specific needs. To discuss trialling these LexisNexis services please email customer service via our online form. Free trials are only available to individuals based in the UK, Ireland and selected UK overseas territories and Caribbean countries. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.

Get your quote today and take step closer to being able to benefit from:

• 36 practice areas

Get a LexisNexis quote

* denotes a required field

To view the latest version of this document and thousands of others like it, sign-in with LexisNexis or register for a free trial.

Existing user? Sign-in CONTINUE READING GET A QUOTE

Related legal acts:

• Finance Act 2003 (2003 c 14)

Key definition:

Stamp duty definition, what does stamp duty mean.

A transfer tax payable on documents and instruments, rather than in respect of a transaction. It is most commonly encountered on the transfer of UK certificated shares, where the stock transfer form is the instrument that is stamped.

Popular documents

Stamp duty reliefs—intra-group, reconstruction and acquisition reliefs.

Stamp duty reliefs—intra-group, reconstruction and acquisition reliefsFORTHCOMING CHANGE relating to the modernisation of stamp taxes on shares framework: Following the call for evidence in 2020, the resulting outcome published in 2021 and consideration by the relevant HMRC and industry working

For stamp duty relief under section 77 of the Finance Act 1986 (FA 1986) to apply, must the acquiring

For stamp duty relief under section 77 of the Finance Act 1986 (FA 1986) to apply, must the acquiring company in a share for share exchange have a share structure identical to the target company?Full stamp duty relief may be available for the acquiring company in a share-for-share exchange if

SDLT—common lease transactionsThis Practice Note provides an overview of the stamp duty land tax (SDLT) treatment of the following common lease transactions:•grant of a lease•linked leases•surrender and re-grant of a lease•agreement for lease•assignment of an agreement for lease•reverse

Application letter—stamp duty group relief—FA 1930, s 42

Application letter—stamp duty group relief—FA 1930, s 42HMRC—Stamp Office[insert HMRC Stamp Office email address or address]Application for stamp duty group relief under section 42 of the Finance Act 1930 (as amended)in the matter of a transfer of shares in [insert name of target company] (Target)

0330 161 1234

• International Sales(Includes Middle East)
• Latin America and the Caribbean
• Netherlands
• New Zealand
• Philippines
• South Africa
• Switzerland
• United States

Popular Links

• Supplier Payment Terms
• Partner Alliance Programme

HELP & SUPPORT

• Legal Help and Support
• Tolley Tax Help and Support

LEGAL SOLUTIONS

• Compliance and Risk
• Forms and Documents
• Legal Drafting
• Legal Research
• Magazines and Journals
• News and Media Analysis
• Practice Management
• Privacy Policy
• Cookie Settings
• Terms & Conditions
• Data Protection Inquiry
• Protecting Human Rights: Our Modern Slavery Agreement

Cookies on GOV.UK

We use some essential cookies to make this website work.

We’d like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services.

We also use cookies set by other sites to help us deliver content from their services.

You have accepted additional cookies. You can change your cookie settings at any time.

You have rejected additional cookies. You can change your cookie settings at any time.

Bring photo ID to vote Check what photo ID you'll need to vote in person in the General Election on 4 July.

beta This part of GOV.UK is being rebuilt – find out what beta means

• Business tax

Stamp Duty Land Tax Manual

Sdltm09845 - sdlt - higher rates for additional dwellings: transitional rules & the wales act 2014.

Where applicable, the higher rates apply to all purchases of dwellings that complete on or after 1 April 2016.

Transitional rules provide that the higher rates do not apply where a contract has been:

• entered into and substantially performed before 26 November 2015, or

entered into before 26 November 2015 and not amended after that date The transitional rules do not apply where contracts were entered into before 26 November 2015 if:

• there is any variation of the contract or assignment of rights under the contract on or after 26 November 2015.
• the transaction is effected in consequence of the exercise on or after 26 November 2015 of any option, right of pre-emption or similar right;
• on or after 26 November 2015 there is an assignment, sub-sale or other transaction relating to the whole or part of the subject-matter of the contract as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance to him by virtue of FA16 s128(7)

A variation of a contract would include a change to:

• the land being purchased,
• the parties to the contract, or to the contractual consideration or
• in an agreement for a lease, to the term length

However some changes - for example, to prescribed colour schemes or to the contractual completion date - may be too insignificant to amount to a variation.

Reservation fees for off-plan purchases

Where the purchaser pays either a reservation fee or an option to purchase fee in relation to their purchase of a dwelling, for example, where they are buying a dwelling on a new development that has not yet been built or completed, this would not generally amount to the exchange of formal contacts between the buyer and seller. The transitional rules will not apply if such a fee were paid on or before 25 November 2015, but contracts had not been exchanged.

Mr A exchanged contracts with a developer on 27 October 2015 on the purchase of 4 flats which he intends to rent out. He also owns a property jointly with his wife which is the family home. On 16 January 2016 Mr A varied the contract to add his wife as a joint purchaser of the 4 flats. Mr A will not be able to benefit from the transitional provisions as the contract was varied after 25 November 2015.

Mr B exchanged contracts in October 2015 to purchase a flat which is due for completion in January 2017. Mr B owns a number of buy-to-let properties and intends to add this one to his portfolio. In May 2016 the contract was varied to add his sister Ms L as a joint purchaser of the flat.

Transitional provisions provide that where a contract was entered into before 26 November 2015, but is not completed until on or after 1 April 2016, the higher rates do not apply provided the contract is not varied after that date. As the contract was varied in May 2016 to add MS L, the transitional provisions will not apply and, as Mr B owns other residential property, the higher rates will be due on completion of the purchase.

The advent of the Wales Act 2014 means that transactions in property covered by section 16(2) of that Act will cease to be subject to the higher rates of SDLT. Schedule 4ZA will be amended by virtue of paragraphs 13, 14(2) and (5) and 16(4) of Schedule 11 to the Finance Act 2018 to recognise this.

Condition D’s requirement regarding a former main residence will still include disposal of main residences situated in Wales [Paras 14(3) and 16(4) of Schedule 11 to the Finance Act 2018].

Para references are to paragraphs in Schedule 4ZA of the Finance Act 2003.

Is this page useful?

• Yes this page is useful
• No this page is not useful

Help us improve GOV.UK

Don’t include personal or financial information like your National Insurance number or credit card details.

To help us improve GOV.UK, we’d like to know more about your visit today. Please fill in this survey (opens in a new tab) .