SDLT spotlight on sub-sale relief

HMRC has a section on its website called "Spotlights". HMRC says that, in Spotlights, it will "Provide some advice on tax planning to be wary of, listing some indicators that we see as suggesting that a scheme may involve tax avoidance and which we are likely to investigate."

One of the tax planning schemes HMRC places in the spotlight is sub-sale relief. SDLT sub-sale relief, or, rather, sub-sale treatment of property transactions, is available under sections 44 to 45 of the Finance Act 2003 (as amended). In general terms, SDLT treatment is achieved through the simultaneous completion of the main contract and the sub-sale contract, sometimes by way of a direct transfer from top to bottom, but often also by way of simultaneously completed transfers from top to intermediate buyer, and from intermediate buyer to sub-buyer. HMRC warns however against the abuse of sub-sale treatment where "an intermediate sale, often on the same day, is introduced into the arrangements with the sole intention of removing the true purchase price from tax." Artificial sub-sales at a lower price had been used in the early days of SDLT as a means of tax avoidance. However, since December 2006, such avoidance devices have run up against the very wide anti-avoidance provisions now to be found in section 75A Finance Act 2003 which was introduced in part to ensure that a sub-sale arranged at a price lower than the main contract price would be charged to SDLT at the higher price.

HMRC says that "Where HMRC find property sale arrangements that have been artificially structured to avoid paying the correct amount of SDLT these will be actively challenged, through the courts where appropriate."