SDLT In Budget 2011

Preventing Avoidance

Legislation will be introduced in Finance Bill 2011 to make three changes to ensure or put beyond doubt that certain stamp duty land tax avoidance schemes are ineffective. The changes affect:

the relationship between the rules on sub-sales and the Alternative Finance reliefs; the definition of a 'financial institution' for the purposes of the SDLT Alternative Finance reliefs; and the way the consideration is determined where land is exchanged. The first measure renders ineffective schemes that employ the combination of a sub-sale and alternative finance reliefs. Currently, as you know, where a sub-sale is structured correctly the transaction between A and B is ignored and SDLT is chargeable if at all on the acquisition by C, who acquires the property under the sub-sale, only. So schemes had been structured whereby B (a private individual) sub-sold to C (typically a Channel Island protected cell company), which was constituted as a financial institution such that it could benefit from alternative finance relief. These schemes were widely sold although there are technical arguments to the effect that they did not work. The position is now put beyond doubt because the sub-sale provisions will from tomorrow specify that this treatment is not available where they are combined with the Alternative Finance reliefs in a way which would remove any SDLT charge on the purchase of an interest in land by B, i.e. where the acquisition by C is an exempt sale to a financial institution. In respect of the second measure, "financial institution" includes banks, building societies and insurance companies. An additional way to qualify as a 'financial institution' is to hold a Consumer Credit Licence. From tomorrow, to prevent abuse, it will no longer be possible to qualify as a 'financial institution' just by holding a Consumer Credit Licence. Regarding the third measure, where a major interest in land is exchanged for another interest in land, the chargeable consideration is determined by the market value of the interest acquired. From tomorrow the chargeable consideration will be changed to be the greater of (a) the market value of the interest acquired, and (b) what the chargeable consideration would be under the normal rules for consideration. The change to these rules ensures that SDLT avoidance will not be possible by the...