SDLT: which value?

A client is considering leasing a property, which he owns personally, to a company that is connected with him under the provisions of CTA 2010, s 1122. We appreciate, therefore, that FA 2003, s 53 will come into play with regard to the stamp duty land tax charge, but we are having difficulty understanding precisely how the charge, under s 53(1A), will be calculated.

On reflection, it seems to us that, logically, stamp duty land tax should simply be charged on the market value rent (using HMRC’s NPV – ‘net present value’ – calculator), irrespective of what rent is actually charged, if any, and that is what the commentary we have come across indicates.

However, s 53(1A)(a) refers to a charge on the ‘subject matter of the transaction’ which, depending on how that phrase is interpreted, would indicate that stamp duty land tax would be charged on the market value of the property itself, and not on the market value rent.

Readers’ thoughts would be greatly appreciated, and we wonder whether the position alters if no rent is charged, rather than a rent at less than market value.

We look forward to replies from Taxation contributors.

Query 17,799 – Confused.

Answer:

The charge under FA 2003, s 53(1A) in the case of a grant of a lease caught by the connected company market value rule is on the ‘market value of the subject-matter of the transaction’ under s 53(1A)(a) and on any rent payable (under s 53(1A)(b).

FA 2003, s 43(6) explains the subject-matter of a transaction as follows:

‘References in this Part to the subject-matter of a land transaction are to the chargeable interest acquired (the ‘main subject-matter’), together with any interest or right appurtenant or pertaining to it that is acquired with it.’

Here the land transaction is the grant of a lease and the subject-matter of it is the lease. Where a lease to a connected company is at a rack rent there will be no charge under s 53(1A) (a) and the NPV of the actual rent will be chargeable under s 53(1A)(b).

Where the lease is at a nominal rent a notional premium reflecting that fact will be chargeable under s 53(1A)(a).

If a rent somewhere between the nominal and a rack rent is chargeable under the lease, the actual rent will be chargeable under s 53(1A)(b) and the value to the tenant of the lease at a less than market rent will be chargeable under s 53(1A)(a).

Marilyn Merlot (Ann Humphrey)

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