Transition to SDLT and the continued application of Section 115 FA 2002
Section 115 was brought in to counteract the stamp duty avoidance scheme known as "resting on contract". Section 115 operates by making the land sale contract the document which is chargeable to stamp duty if the contract price exceeds £10 million and the contract is not completed within 90 days of its execution or such longer period as the Revenue may allow.
SDLT comes in with effect from 1 December 2003. There has however been some doubt, added to by the Inland Revenue itself, as to the inter-relationship between section 115 and the SDLT regime in relation both to pre-1 December contracts and even post-30th November contracts.
The situation has now been clarified both by recent changes to the sub-sale rules under the SDLT regime and further guidance from the Revenue.
Basically, any contract for land over £10 million entered into before 1 December falls within the old stamp duty regime and therefore section 115 can apply. Accordingly such contracts need to be completed by transfer within 90 days or an application for extension of the period will need to be made to the Revenue if stamp duty is not to be payable on the contract.
If stamp duty is paid on the contract and the transfer is eventually executed after 30 November that transfer will be subject to SDLT with credit being given for the stamp duty already paid. If the contract never completes then stamp duty can be refunded.
On the other hand, in relation to contracts executed after 30 November 2003, they are wholly within the new SDLT regime. Contracts are not subject to duty themselves unless there is substantial performance of the contract within the terms of the new provisions. This usually means payment of at least 90 per cent of the price, letting into occupation or passing over the entitlement to rents from occupiers.
The interesting side effect of all this is that the new rules now mean that in relation to land worth less than £10 million the rest on contract scheme is still alive. In particular until 1 December 2003 a purchaser may contract to buy a property and pay the price but not take the transfer or conveyance of the property itself. He may also take a transfer of shares in one or more nominee companies which have been incorporated by the vendor to hold the bare legal title to the property. Obviously if the property purchase contract is ever itself completed after 30 November 2003 there will be SDLT. However under the SDLT regime if there is in the future a sub-sale of the land (and provided that the substantial performance of the original contract, i.e. the payment of the price occurs before 1 December 2003) then the only transaction subject to SDLT or stamp duty is the completion of the sub-sale contract (or the substantial performance of it).
For further information on the above, please contact Mark Nichols (020 7367 2051, mark.nichols@cms-cmck.com ), Mike Boutell (020 7367 2218, michael.boutell@cms-cmck.com ), Richard Croker (020 7367 2149, richard.croker@cms-cmck.com ).
