Sdlt on lease - linked transaction?

Limited company grants 2 leases to connected parties. Will it be classed as linked?

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My client has a limited company which owns a commercial building with 2 flats above. 

It has granted a long lease of the flats to a seperate company of his (same director/shareholding) for a £100k premium and no rent.

It has then granted a 6 year lease for the commercial unit to a 3rd limited company (again same director/shareholding) for a rent of £26k per annum. The company is running a pharmacy from this premise. The solicitors have calculated the npv of rent at £138,500.

The solicitors however are not willing to advise if the two transactions are linked and if so what stamp duty is due. Now the client want me to do this for him.

I am a bit confused as i believe the transaction is linked but how then do i calculate the stamp duty as commercial property threshold for sdlt is £150k (exceeded if linked) and rate of 1% and residential property there will be a 3% charge upto £250k (not exceeded even if linked) and 8% for anything above.

 

I can think of 3 possible scenarios:

1. Not linked as one is commercial and other residential lease. So 3% sdlt on residential premium of £100k will mean £3k sdlt.

2. Treat both as commercial and aggregate lease value (£238,500). Sdlt 1% above £150k meaning £838.50. Which works out less than if its not linked.

3. Treat each seperately and pro rata the threshold but unsure how to do this

 

Any help will be much appreciated.

Replies (15)

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By FactChecker
03rd Jun 2024 22:14

Why are you happy to keep a client who goes around actioning things like these leases without consulting you first with regard to the implications (not just the SDLT)?

I know that doesn't address your questions, but at best you're always going to be on the back-foot with a client who springs surprises on you 'after the event'.

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Replying to FactChecker:
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By Saifur
03rd Jun 2024 23:04

Apologies i didnt phrase the question above accurately.

The client is about to grant the 2 leases and they are yet to be signed. The solicitor is holding up on completion until stamp duty issue is resolved.

He knew that there would be stamp duty payable but assumed the solicitors would deal with it.

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VAT
By Jason Croke
04th Jun 2024 08:32

Many solicitors will not advise on SDLT, much like many Accountants don't draft sales contracts or heads of terms.

Some reading for you (if not already familiar with these links) :

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdlt...

https://www.gov.uk/guidance/sdlt-linked-purchases-or-transfers

"When 2 or more property transactions involve the same buyer and seller, they count as ‘linked’ for Stamp Duty Land Tax. HMRC may count people connected to a buyer or seller as being the same buyer or seller. If 2 or more transactions are treated as linked then the buyer pays any Stamp Duty Land Tax due on the total value of all linked transactions. This may mean that they pay a higher rate of Stamp Duty Land Tax than if the transactions are counted individually."

"If all the properties that link are residential, apply the residential property rates to the linked transactions. If any or all of the properties that link are non-residential, apply the non-residential property rates to the linked transactions."

It may be useful, longer term, to have a couple of SDLT experts in your contacts/files, referring your client to them instead of trying to do yourself, that isn't coming from a position of doubting your knowledge, you might be very comfortable with your knowledge but just wanting a sense check, SDLT can be quite confusing, but consider the position from the perspective of your PI cover.

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Replying to Jason Croke:
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By Saifur
04th Jun 2024 08:59

Thanks, Jason.

Yes those are the manuals that ive read and the second paragraph you quoted is the reason why i think option 2 is the correct one. The reason im doubting it os that it gives a lower sdlt charge then if it wasnt linked.

I admit im not an sdlt expert and wouldnt usually give sdlt advise unless its a basic purchase of one property.

I did advise the client to seek expert advise as this isnt a basic sdlt transaction. The client in this case is also a good friend of mine and doesnt mind paying me for doing some research and working out the correct sdlt due.

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Replying to Jason Croke:
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By Justin Bryant
04th Jun 2024 10:13

Jason, as you should know, it's not that simple, but in this case HMRC's duff guidance works in this chap's favour, so who's to complain?

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Replying to Justin Bryant:
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By Tax Dragon
04th Jun 2024 10:59

There comes a point when simplification becomes gross misstatement. HMRC passes that point frequently. What reliance can be placed on the guidance?

The HMRC instructions to its staff (in the manual link Jason provided) says: "Just because two transactions are between the same purchaser and seller does not necessarily mean they are linked".

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Replying to Tax Dragon:
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By Justin Bryant
04th Jun 2024 11:07

Yes; but I obviously meant the other link - which is obviously duff e.g. at auctions you could coincidentally buy from the same vendor.

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Replying to Justin Bryant:
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By Tax Dragon
04th Jun 2024 12:06

I got that.

HMRC's instructions to its staff are at odds with its guide for the unrepresentated public.

Here the taxpayer is taking [hopefully appropriate] advice (which should constitute reasonable care) and the professional advisor should not rely on the idiots' guide; but are you aware of any statement by HMRC that says the reasonable care requirement can ever be met by referring to the public guidance? If it can't, what is the point of the guidance?

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Replying to Tax Dragon:
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By Justin Bryant
04th Jun 2024 12:31

Taxpayer carelessness (or not as the case may be) is ultimately a matter for a judge; not HMRC.

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By taxdigital
04th Jun 2024 10:35

Quickly, here are some pointers for you to research/ read up further on. I haven’t looked up the HMRC stuff.

Transactions are “linked” …….."IF THEY FORM PART OF A SINGLE scheme, arrangement or series of transactions between the same vendor and purchaser or, in either case, persons connected with them" (s.108 fa 2003). This is basically a piece of anti-avoidance legislation aimed at transactions which are artificially
split with a view to saving on SDLT. The questions you should be asking yourself are:

a) Is this a composite transaction artificially split to secure a tax advantage?
b) Could the transactions have taken place independently of each other, if the parties were not connected?
c) The consideration involved if the parties weren't connected, etc. etc.

The parties to the transactions being three companies beneficially owned and controlled by the same individual are obviously connected (s.1122(2)(a) CTA 2010).

So, again the question is, do these two transactions, albeit between connected persons, form a part of a single scheme, arrangement or series of transactions?

Simply going by what you say in the OP, probably not. But I'm sure there is more to it.

In relation to SDLT on linked transactions involving residential and non-residential properties, the non-residential rates will apply (s.55(1C) & (4).

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Replying to taxdigital:
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By Saifur
04th Jun 2024 14:20

In the above scenario:

Company A is granting a lease of commercial unit with to Company B for a commercial unit at £26k per annum. Company B will use the unit to carry on its trade.

Company A is also granting the lease of 2 flats above the commercial unit to company C with a lease premium of £100k. Company C will let these out.

Company A,B & C are connected. Issue we have is a) is the transactions linked and B) if its linked then how to work out the sdlt as rate is different for lease premium and and npv of rent

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Replying to Saifur:
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By Tax Dragon
04th Jun 2024 14:34

What makes you think they are (or may be) linked? As HMRC says, it's not enough that the two transactions are between connected persons.

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Replying to Tax Dragon:
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By Saifur
04th Jun 2024 14:42

Only the fact that its flat upstairs and unit downstairs.

Also transactions taking place at the same time so looks like 1 arrangement.

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Replying to Saifur:
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By taxdigital
04th Jun 2024 15:59

Clearly you have no clue how these things work and my post obviously made no difference. So, I suggest you get paid for advice from professionally qualified advisers.

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Replying to taxdigital:
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By Saifur
04th Jun 2024 16:08

Sorry if that how my response sounded like.

As explained before i agree my knowledge in these area is not comparable to an expert.

For me the hmrc guidance is very sketchy. I understand that the transaction being between connected parties itself is not sufficient. That is why i am unsure. If it was a simple case of bottom floor being sold to company B today and top floor to company B at a later date i guess the link is easily identifiable.

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