SDLT: assignment at a loss

Our client, A, agreed to purchase a flat off-plan for £450,000 and entered into an agreement for lease. Unfortunately, having been made redundant, A was unable to complete the purchase, but found a cash purchaser, B, who is prepared to take an assignment of the agreement for lease for no consideration and will complete the purchase. However, B will pay only £270,000. The original buyer A will have to pay the balance of £180,000 to the developer.

Can readers advise as to who has to pay stamp duty land tax and on what amount? A call to the Stamp Office helpline brought the answer that A would pay on £180,000 and B on £270,000, but I must admit to having little confidence in this.

As a second point, does A have a claim to a capital loss of £180,000?

Query 17,399 – Flatly.

Answer:

The Stamp Office helpline are half right! Assuming that A and B are not ‘connected’ for SDLT purposes, paragraph 12B Schedule 17A FA 2003 (a form of sub-sale relief for leases) will apply and, as there has not been substantial performance of the agreement for lease, the transaction will be treated as though B had entered into the agreement for lease, not A. B will be liable for SDLT on the grant of the lease to him and the A/B transaction will be ignored. The consideration charged to SDLT will be the £270,000 paid by B, notwithstanding that the original seller receives £450,000.

For capital gains tax purposes, the £180,000 paid by A to the original seller will, in my view, not give rise to an allowable capital loss as A does not acquire an asset as a result of it – he pays to rid himself of the burden of an onerous contract. That expenditure does not fall within section 38 TCGA 1992.

Dr Wu (Ann Humphrey)

First published in Taxation magazine Readers’ Forum www.taxation.co.uk