SDLT – Transfer of property to a pension fund

A commercial property had been acquired in January 2012 by Mr and Mrs P.  The purchase was financed by a loan from ABC Limited, a company in which Mr and Mrs P owned 100% of the shares.  By December 2012 the property had a market value of around £500,00 and Mr and Mrs P had been advised that the property be transferred into their pension fund.

The proposal was that the property first be transferred to ABC Limited and offset against the monies borrowed to finance its purchase.  The interest in the property would then move from the company to the pension fund by means of a series of ‘in-specie’ contributions. It had been suggested that it would be advantageous for SDLT purposes if the property was transferred to ABC Limited for no consideration.

Advice

A transfer of the property from Mr and Mrs P to ABC Limited would be treated as taking place for SDLT purposes at not less than the market value because of the deemed market value rule in section 53 Finance Act 2003.

The pension fund trustee was also a company but the deemed market value rule is subject to three exceptions, one of which applies where the transferee company holds the property as trustee and the transferor is connected to the company only by reason of section 1122(6) Corporation Tax Act 2010. Section 1122(6) provides that a trustee of a settlement is connected with, amongst others, the settlor and persons connected with the settlor. A transfer of the property from Mr and Mrs P directly to the pension fund trustee would therefore not be deemed to take place at market value for SDLT purposes (provided that they were not connected otherwise than as settlors and trustees of the settlement).

There are no special SDLT rules for pension funds so the general rule applied which was that, subject to the market value rule, there would only be a charge to SDLT if there was ‘chargeable consideration’ for the transaction. ABC Limited and the pension fund trustee would not be connected (provided that Mr and Mrs P and the corporate trustee were not connected otherwise than as settlors and trustees of the settlement).

The transfer of the property from ABC Limited to the pension fund trustee by way of a series of distributions in specie might be chargeable to SDLT depending on how the transactions were structured.  If there were a series of contributions to the pension fund, each of which gave rise to a debt to be satisfied by the transfer of an interest in the property equal in value, there would be consideration for SDLT purposes and, as the transactions would be linked, the rate of SDLT would be that attributable to the total consideration.

At the time of publication this case study was technically accurate however, as tax law and practice change rapidly, you should take specific advice before taking any action.