The careful structuring of a sale and leaseback could save 17.5% in stamp duty land tax costs.
Sale and leaseback transactions which are structured so that the lease is granted after the sale may not be SDLT efficient, because the buyer pays SDLT on the entire purchase price, plus the VAT element. The buyer can make a significant SDLT saving if the lease is granted before the sale is exchanged and completed. This is because for VAT elected properties no VAT is payable where the sale is treated as a transfer of a going concern and so the SDLT cost is 17.5% less than what it would otherwise have been.
The sale needs to be structured as follows:
- The lease must be granted to a company outside the seller's VAT group before exchange of contracts.
- Consider if the seller should act as guarantor under the lease; it is likely that the deal has been struck on the basis of the seller's covenant strength.
- The lease should require the seller/guarantor to be made party to any future authorised guarantee agreement.
Although the detail is outside the scope of this article, the parties should also consider whether SDLT is payable on the leaseback, because this could potentially outweigh the SDLT saving on the sale. In principle group relief should be available.
