Can there be a charge to SDLT where a restrictive covenant is released?
Chargeable Consideration, Notifiable Transaction
We have a Client who has purchased land which used to be a former nursery. It was purchased by auction in March 2017 for the sum of £106,000.
He has now negotiated a release of a restrictive covenant which is imposed on the property not to use the same for anything other than a nursery. He is now proposing to develop the land and the negotiated the release of the covenant for the sum of £45,000 plus £1,000 in legal and surveyors fees with the local Council. This seems to be an interest in land which I think will mean that I have to make a return but I do not think that we will have to pay any duty.
I really would be very grateful if you can help me out with the answer.
Yes the release of a restrictive covenant can give rise to a charge to SDLT as it is the acquisition of a chargeable interest by the person who benefits (section 48 FA 2003) but here the consideration is below the relevant threshold so there will be no charge to tax The following transactions are notifiable:
(a) an acquisition of a ‘major interest’ in land (basically a freehold, at law or in equity) that does not fall within one or more of a list of exceptions;
(b) an acquisition of a chargeable interest other than a major interest in land where tax is payable or would be payable but for a relief;
(c) a land transaction that a person is treated as entering into by virtue of FA 2003 s 44A (‘contract providing for conveyance to third party’); and
(d) a notional land transaction under section 75A FA 2003.
Your transaction is therefore not notifiable.
At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.
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