In an earlier article we outlined the introduction of the new sub-sale relief rules. These have now been enacted in the Finance Act 2013.
Broadly, under the new provisions, the intermediate purchaser in a transaction has to submit a claim for the relief. Otherwise, the intermediate purchaser will have to pay SDLT on the consideration payable under its contract as well as the ultimate purchaser paying SDLT, usually on substantially the same consideration.
Despite representations having been made there appears to be a technical problem with the new SDLT sub-sale rules (relating to sub-sale transactions) which could have potentially significant commercial implications.
The relevant paragraph of the new legislation requires that, in order for the intermediate purchaser to get relief, there has to be completion or substantial performance of the original contract. For the purposes of the legislation substantial performance means the purchaser taking possession of the whole, or substantially the whole, of the subject-matter of the contract or a substantial amount of the consideration being paid or provided.
In practice, this is interpreted by the Revenue as meaning 90% or more of the land being acquired or the consideration being paid, as the case may be. If the original contract is over a large piece of land which is to be drawn down and sold on by a developer (intermediate purchaser) in tranches, then each time there is completion of a tranche, there will not be completion or substantial performance of the original contract (only part of it).
Sub-sale relief will only be available for the acquisition of the tranche whose sub-sale triggers substantial performance or completion of the original contract. The rest of the acquisition SDLT will become payable at that point - but no further sub-sale relief will be available (as earlier and later sub-sales won't take place at the same time as, and in connection with, the completion or substantial performance of the original contract).
Where existing contracts have been entered into, clearly there is not much the intermediate purchaser can do except hope the Revenue will change the law with retrospective effect. For purchasers thinking of entering into those sorts of contracts it would be better to split the single contract into a number of separate contracts so that substantial performance can be achieved on each tranche. Whilst this may avoid the potential additional SDLT cost, such an approach may not be considered particularly attractive from a commercial perspective.
Whilst this is likely to be a problem only in large-scale developments, it is worrying that such a problem should arise with new legislation, and this would seem to be an inevitable result of complex drafting giving rise to unintended consequences.