SDLT – UK land held in a JPUT

A Jersey Property Unit Trust (‘JPUT’) owned an industrial site in the UK.  JPUT had received an offer for part of the site and the purchasers wanted to minimise SDLT on the acquisition. Advice was sought on whether it was possible to achieve this by JPUT issuing additional units to the existing unit holders in proportion to their existing holdings.  The new units would relate solely to the part of the site to be sold.  The old units would relate to the balance.  The new units would be sold to the purchaser, effectively transferring the part of the site to which the units carried entitlement free of UK SDLT.

Section 101 Finance Act 2003 provides that the trustees of a unit trust scheme are treated as if they were a company for SDLT purposes, and the rights of unit holders are treated for SDLT purposes as if they were shares in that company.  Being treated as a company means that unit trusts are carved out of the trust rules in Schedule 16 FA 2003.  The effect of this is that the units in a property-owning unit trust are not chargeable interests (as interests in a trust owning UK land would be) and therefore SDLT does not apply to the acquisition of those units.  When unit trust seeding relief was withdrawn in March 2006 no change was made to bring transfers of units in a unit trust which owns UK land within the charge to SDLT.

Where there is an ‘umbrella scheme’ each part is regarded as a separate unit trust and the scheme as a whole is not treated as a unit trust scheme for SDLT purposes.  Therefore, where part of an umbrella scheme acquires land, that part is treated as a unit trust in its own right and the trustees of that part will be treated as a company by virtue of section 101(1)(a). Acquisitions of chargeable interests within an umbrella scheme can therefore be subject to the market value rule in section 53 FA 2003 but there is no provision deeming an allocation of land already within a unit trust to specific units to be an acquisition of a chargeable interest, even where this may result in the creation of an umbrella scheme.

The SDLT GAAR in section 75A FA 2003 does not apply to recharacterise a transaction unless there is a disposal of a chargeable interest.  As units in a property-owning unit trust are not chargeable interests the GAAR cannot apply to a disposal of them.

The proposals worked.

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.