Historically, it was possible to avoid or defer payment of the stamp duty property tax (SDLT) on land purchases by leaving the transaction “contract-based”, meaning that the contract of purchase of a property would be exchanged and the purchase price would be paid by the buyer to the seller but the actual transfer of the legal interest in the property would not pass to the buyer. The 2013 finance Act introduced a number of anti-avoidance provisions relating to SDLT, which apply to all instruments executed from February 13, 2013. SDLT is now liable on the substantial execution of the transaction rather than on the completion of the transfer document. Substantial performance includes payment of the consideration or taking possession of the asset. The ability to defer SDLT by resting on contract has been brought to an end.

SDLT is payable on acquisitions of taxable land rights within 14 days of the effective date, being the earliest of completion and substantial execution. When SDLT is paid on the substantial performance date, any transfer or subsequent transfer of land will not be stamped and if the contract is subsequently terminated or cancelled, a refund of the SDLT paid on the contract date may be available.

It is no longer possible to ` rest on contract ‘ to avoid payment of SDLT due to the substantial performance rule in section 44 of the 2003 finance Act. If the transaction is completed without having been substantially previously executed, the contract and the transaction that took place on completion are treated as part of a single land transaction. In this case, the effective date of the transaction is the finalization date. If, however, the contract is essentially performed without the legal transfer of ownership having been completed, the contract is treated as if it were itself the operation provided for in the contract. In this case, the effective date of the transaction is when the contract is essentially executed.

Developer Issues

Some developers may still be caught up in stamp duty issues where they are anxious to get there and take ownership of the site prior to completion. Taking possession may result in the substantial fulfilment of the contract and payment of the SDLT. What amounts to possession as a legal concept is quite broad, and it may not need to be exclusive possession. HMRC said the entry of a future tenant to do development work is taking possession, so HMRC is unlikely to see the start of site preparations any differently. Substantial performance could also be triggered when possession is taken for a short time and then returned. For example, to begin site preparations and erect signs.

If the contract is largely executed by the developer who takes possession before legal completion and pays the SDLT due, in the event that the contract is terminated a few years later because the conditions are not met, then the recent Candy v. HMRC [2020] UKFTT 0113 is good news, according to which the usual 12 month deadline for an SDLT claim did not apply in these circumstances.