There will often be reasons for a property transaction to occur in stages by way of an initial sale to a buyer who acts as an intermediary party and then a second sale to a final buyer, this process is what is known as a sub-sale. However, when a property is transferred twice in the course of the transaction, there is likely to be a double charge of tax.
Sub-sale stamp duty relief is intended to prevent this double tax charge. Stamp duty land tax will only be payable on the actual transfer of the property to the final buyer under the second contract.
When Is Stamp Duty Sub-Sale Relief Granted?
Stamp duty sub-sale relief is granted when a buyer who has entered into a land transaction contract transfers the rights of that land transaction to a third party before the land transaction is completed.
When this occurs both buyers (the buyer of the first land transaction and the person they wish to transfer the rights to) are required to submit a sub-sale stamp duty relief application and will therefore pay the necessary stamp duty land tax on the property. However, the first buyer is then entitled to claim the relief.
Sub-sale relief from stamp duty will not be granted if it is proven that the sub-sale arrangements were carried out as part of a tax avoidance scheme.
Sub-sale stamp duty relief is designed to make sure that the transferee who ends up acquiring the property is the only person who has paid the stamp duty land tax on the property.
Assignment Of Rights For Sub-Sales and Stamp Duty
An assignment of rights happens when a third party completes the original contract. For example; if a buyer enters a land transaction contract to buy a property from a seller. Before the purchase is finished the buyer assigns the rights of the contract to an assignee (who then becomes the transferee.)
The original buyer is then no longer a part of the process but they should still submit a su-sale stamp duty relief application based on the amount they would have paid under the contract had they not transferred the rights to the property.
Free-Standing Transfers, Sub-Sales And Stamp Duty
HMRC also states their regulations around free-standing transfers. A free-standing transfer is any other transaction that allows a buyer to claim sub-sale relief but isn’t necessary a transfer of rights. For example; if both parties (buyer and seller) enter into a contract and before the purchase is complete the buyer enters into another contract with a third party buyer to sell part of the property to them once the original contract between buyer and seller has been dealt with.
With free-standing transfers, the buyer will need to submit a sub-sale relief for stamp duty land tax for their purchase and calculate the tax payable based on their actual purchase price. The third-party buyer would then submit their return and calculate the stamp duty land tax based on the amount they paid under their contract with the buyer.
Sub-sale stamp duty relief won’t be granted if the original contract between both parties has finished before the contract for the sub-sale has begun. If the immediate buyer begins occupying the property or pays over 90% of the stamp duty land tax due on the property before entering into the second contract then sub-sale stamp duty relief is likely to be denied.
Sub-Sales And Stamp Duty For Connected Parties
If the buyer and the assignee who have entered into the contract are connected parties (married, business partners or are related) then the assignee or third-party buyer would calculate the SDLT using whichever is the highest amount out of the amount payable by the assignee or a third party buyer to the buyer or the amount that the buyer agreed to pay to the seller.
How Can CapEx Tax Help?
At CapEx Tax our specialists help to make sure that your stamp duty land tax refund applications are as accurate as possible and include all of the required information to process your claim if this is incorrect then HMRC may take longer to process your claim or can deny your claim completely. As sub-sale relief from stamp duty is difficult to calculate and needs to be handled quickly our tax specialists can walk you through the process and help you to calculate your stamp duty land tax return. Get in touch with us today so that we can learn more about your claim and help you through the process.