Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 1 — Amendments to Part 4 of the Finance Act 2003: general
532

Agreement for lease
3
In section 44 (contract and conveyance), after subsection (9) insert—
“(9A)
Where—
(a)
paragraph 12A of Schedule 17A applies (agreement for
lease), or
5
(b)
paragraph 19(3) to (6) of Schedule 17A applies (missives of let
etc in Scotland),

it applies in place of subsections (4), (8) and (9).”.
Contract providing for conveyance to third party
4     (1)
After section 44 insert—
10
“44A
Contract providing for conveyance to third party
(1)
This section applies where a contract is entered into under which a
chargeable interest is to be conveyed by one party to the contract (A)
at the direction or request of the other (B)—
(a)
to a person (C) who is not a party to the contract, or
15
(b)
either to such a person or to B.
(2)
B is not regarded as entering into a land transaction by reason of
entering into the contract, but the following provisions have effect.
(3)
If the contract is substantially performed B is treated for the purposes
of this Part as acquiring a chargeable interest, and accordingly as
20
entering into a land transaction.

The effective date of the transaction is when the contract is
substantially performed.
(4)
Where the contract is (to any extent) afterwards rescinded or
annulled, or is for any other reason not carried into effect, the tax
25
paid by virtue of subsection (3) shall (to that extent) be repaid by the
Inland Revenue.

Repayment must be claimed by amendment of the land transaction
return made in respect of the contract.
(5)
Subject to subsection (6), section 44 (contract and conveyance) does
30
not apply (except so far as it defines “substantial performance”) in
relation to the contract.
(6)
Where—
(a)
this section applies by virtue of subsection (1)(b), and
(b)
by reason of B’s direction or request, A becomes obliged to
35
convey a chargeable interest to B,

section 44 applies to that obligation as it applies to a contract for a
land transaction that is to be completed by a conveyance.
(7)
Section 44 applies in relation to any contract between B and C, in
respect of the chargeable interest referred to in subsection (1) above,
40
that is to be completed by a conveyance.

References to completion in that section, as it so applies, include
references to conveyance by A to C of the subject matter of the
contract between B and C.

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 1 — Amendments to Part 4 of the Finance Act 2003: general
533

(8)
In this section “contract” includes any agreement and “conveyance”
includes any instrument.”.
      (2)
In section 48 (chargeable interests), after subsection (6) insert—
“(7)
This section has effect subject to subsection (3) of section 44A
(contract and conveyance to third party).”.
5
      (3)
In section 77 (notifiable transactions), after subsection (4) insert—
“(5)
A land transaction that a person is treated as entering into by virtue
of subsection (3) of section 44A (contract and conveyance to third
party) is notifiable.”.
Contract and conveyance: effect of transfer of rights
10
5     (1)
Section 45 (contract and conveyance: effect of transfer of rights) is amended
as follows.
      (2)
In subsection (1)—
(a)
after paragraph (b) insert “, and
(c)
paragraph 12B of Schedule 17A (assignment of
15
agreement for lease) does not apply.”;
(b)
at the end insert “, and references to the transferor and the transferee
shall be read accordingly”.
      (3)
For subsection (5) substitute—
“(5)
Where a transfer of rights relates to part only of the subject-matter of
20
the original contract (“the relevant part”)—
(a)
subsection (8)(b) of section 44 (restriction of charge to tax on
subsequent conveyance) has effect as if the reference to the
amount of tax chargeable on that contract were a reference to
an appropriate proportion of that amount, and
25
(b)
a reference in the second sentence of subsection (3) above to
the original contract, or a reference in subsection (4) above to
the secondary contract arising from an earlier transfer of
rights, is to that contract so far as relating to the relevant part
(and that contract so far as not relating to the relevant part
30
shall be treated as a separate contract).”.
      (4)
After that subsection insert—
“(5A)
In relation to a land transaction treated as taking place by virtue of
subsection (3)—
(a)
references in Schedule 7 (group relief) to the vendor shall be
35
read as references to the vendor under the original contract;
(b)
other references in this Part to the vendor shall be read,
where the context permits, as referring to either the vendor
under the original contract or the transferor.”.
      (5)
After section 45 insert—
40
“45A
Contract providing for conveyance to third party: effect of transfer of
rights
(1)
This section applies where—

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 1 — Amendments to Part 4 of the Finance Act 2003: general
534

(a)
a contract (“the original contract”) is entered into under
which a chargeable interest is to be conveyed by one party to
the contract (A) at the direction or request of the other (B)—
(i)
to a person (C) who is not a party to the contract, or
(ii)
either to such a person or to B,
5

and
(b)
there is an assignment or other transaction (relating to the
whole or part of the subject-matter of the original contract) as
a result of which a person (D) becomes entitled to exercise
any of B’s rights under the original contract in place of B.
10

References in the following provisions of this section to a transfer of
rights are to any such assignment or other transaction.
(2)
D is not regarded as entering into a land transaction by reason of the
transfer of rights, but section 44A (contract providing for conveyance
to third party) has effect in accordance with the following provisions
15
of this section.
(3)
That section applies as if—
(a)
D had entered into a contract (a “secondary contract”) in the
same terms as the original contract except with D as a party
instead of B, and
20
(b)
the consideration due from D under the secondary contract
were—
(i)
so much of the consideration under the original
contract as is referable to the subject-matter of the
transfer of rights and is to be given (directly or
25
indirectly) by D or a person connected with him, and
(ii)
the consideration given for the transfer of rights.
(4)
The substantial performance of the original contract shall be
disregarded if—
(a)
it occurs at the same time as, and in connection with, the
30
substantial performance of the secondary contract, or
(b)
it occurs after the transfer of rights.
(5)
Where there are successive transfers of rights, subsection (3) has
effect in relation to each of them.
(6)
The substantial performance of the secondary contract arising from
35
an earlier transfer of rights shall be disregarded if—
(a)
it occurs at the same time as, and in connection with, the
substantial performance of the secondary contract arising
from a subsequent transfer of rights, or
(b)
it occurs after that subsequent transfer.
40
(7)
Where a transfer of rights relates to only part of the subject matter of
the original contract, or to only some of the rights under that
contract—
(a)
a reference in subsection (3)(a) or (4) to the original contract,
or a reference in subsection (6) to the secondary contract
45
arising from an earlier transfer, is to that contract so far as
relating to that part or those rights, and
(b)
that contract so far as not relating to that part or those rights
shall be treated as a separate contract.

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 1 — Amendments to Part 4 of the Finance Act 2003: general
535

(8)
The effective date of a land transaction treated as entered into by
virtue of subsection (3) is not earlier than the date of the transfer of
rights.
(9)
In relation to a such a transaction—
(a)
references in Schedule 7 (group relief) to the vendor shall be
5
read as references to A;
(b)
other references in this Part to the vendor shall be read,
where the context permits, as referring to either A or B.
(10)
Section 839 of the Taxes Act 1988 (connected persons) applies for the
purposes of subsection (3)(b).
10
(11)
In this section “contract” includes any agreement.”.
      (6)
In section 122 (index of defined expressions), in the entry for “vendor” insert
at the end “(see too sections 45(5A) and 45A(9))”.
Relief for sale and leaseback arrangements
6     (1)
Section 57A (sale and leaseback arrangements) (inserted by the Stamp Duty
15
and Stamp Duty Land Tax (Variation of the Finance Act 2003) (No. 2)
Regulations 2003 (S.I. 2003/2816)) is amended as follows.
      (2)
In subsection (3) (the qualifying conditions), for paragraph (b) substitute—
“(aa)
that the sale transaction is entered into wholly or partly in
consideration of the leaseback transaction being entered into,
20
(b)
that the only other consideration (if any) for the sale is the
payment of money or the assumption, satisfaction or release
of a debt (or both),”.
      (3)
After paragraph (c) of that subsection insert—
“(d)
that the sale is not a transfer of rights within the meaning of
25
section 45 (contract and conveyance: effect of transfer of
rights) or 45A (contract providing for conveyance to third
party: effect of transfer of rights), and
(e)
where A and B are both bodies corporate at the effective date
of the leaseback transaction, that they are not members of the
30
same group for the purposes of group relief (see paragraph 1
of Schedule 7) at that date.”.
      (4)
Omit subsection (4) (chargeable consideration for sale taken to be not less
than market value).
Registration of land transactions
35
7
In section 79 (registration of land transactions etc), in subsection (2)
(transactions to which section does not apply), for the words from “other
than” to the end of paragraph (b) substitute “other than a transaction treated
as taking place—
(a)
under subsection (4) of section 44 (contract and conveyance)
40
or under that section as it applies by virtue of section 45
(contract and conveyance: effect of transfer of rights), or
(b)
under subsection (3) of section 44A (contract providing for
conveyance to third party) or under that section as it applies
by virtue of section 45A (contract providing for conveyance
45
to third party: effect of transfer of rights).”.

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 1 — Amendments to Part 4 of the Finance Act 2003: general
536

“Effective date” of a transaction
8
In section 119 (meaning of “effective date” of a transaction), in subsection (2)
(cases where effective date is not date of completion)—
(a)
after the entry for section 44(4) insert—

“section 44A(3) (contract providing for conveyance to
5
third party),

section 45A(8) (contract providing for conveyance to
third party: effect of transfer of rights),”;
(b)
at the end insert—

“paragraph 12A(2) of Schedule 17A (agreement for lease
10
followed by substantial performance),

paragraph 12B(3) of that Schedule (assignment of
agreement for lease occurring after agreement
substantially performed), and

paragraph 19(3) of that Schedule (missives of let etc in
15
Scotland followed by substantial performance).”.
Chargeable consideration
9     (1)
Schedule 4 (chargeable consideration) is amended as follows.
      (2)
In paragraph 10 (carrying out of works), after sub-paragraph (2) insert—
    “(2A)
Where subsection (8) of section 44 (contract and conveyance)
20
applies, so that there are two notifiable transactions (the first being
the contract and the second being the transaction effected on
completion), the condition in sub-paragraph (2)(a) is treated as
met in relation to the second transaction if it is met in relation to
the first.”.
25
      (3)
In paragraph 17 (arrangements involving public or educational bodies)
(inserted by the Stamp Duty Land Tax (Amendment of Schedule 4 to the
Finance Act 2003) Regulations 2003 (S.I. 2003/3293)), after sub-paragraph (4)
insert—
    “(4A)
Sub-paragraphs (3) and (4) shall be disregarded for the purposes
30
of determining whether the land transaction in question is
notifiable.”.
Provisions relating to leases
10
In Schedule 5 (amount of tax chargeable: rent), after paragraph 1 insert—
“Amounts payable in respect of periods before grant of lease
35
1A
For the purposes of this Part “rent” does not include any
chargeable consideration for the grant of a lease that is payable in
respect of a period before the grant of the lease.”
11    (1)
Schedule 17A (further provisions relating to leases) (inserted by the Stamp
Duty and Stamp Duty Land Tax (Variation of the Finance Act 2003) (No. 2)
40
Regulations 2003 (S.I. 2003/2816)) is amended as follows.

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 1 — Amendments to Part 4 of the Finance Act 2003: general
537

      (2)
After paragraph 7 insert—
“First rent review in final quarter of fifth year
7A
Where—
(a)
a lease contains provision under which the rent may be
adjusted,
5
(b)
under that provision the first (or only) such adjustment—
(i)
is to an amount that (before the adjustment) is
uncertain, and
(ii)
has effect from a date (the “review date”) that is
expressed as falling five years after a specified date,
10

and
(c)
the specified date falls within the three months before the
beginning of the term of the lease,

this Schedule has effect as if references to the first five years of the
term of the lease were to the period beginning with the start of the
15
term of the lease and ending with the review date.

References to the fifth year of the term of the lease shall be read
accordingly.”.
      (3)
In paragraph 9 (rent for overlap period in case of grant of further lease), in
sub-paragraph (1), at the end of paragraph (b) insert “, or
20
(c)
a person claiming relief against re-entry or forfeiture as
under-lessee in relation to the original sub-lease (“the old
lease”) is granted a lease (“the new lease”) in pursuance of
an order of a court.”.
      (4)
After paragraph 12 insert—
25
“Agreement for lease
12A   (1)
This paragraph applies where in England and Wales or Northern
Ireland—
(a)
an agreement for a lease is entered into, and
(b)
the agreement is substantially performed without having
30
been completed.
      (2)
The agreement is treated as if it were the grant of a lease in
accordance with the agreement (“the notional lease”), beginning
with the date of substantial performance.

The effective date of the transaction is that date.
35
      (3)
Where a lease is subsequently granted in pursuance of the
agreement—
(a)
the notional lease is treated as if it were surrendered at that
time, and
(b)
the lease itself is treated for the purposes of paragraph 9
40
(rent for overlap period in case of grant of further lease) as
if it were granted in consideration of that surrender.
      (4)
Where sub-paragraph (1) applies and the agreement is (to any
extent) afterwards rescinded or annulled, or is for any other
reason not carried into effect, the tax paid by virtue of that sub-
45
paragraph shall (to that extent) be repaid by the Inland Revenue.

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 1 — Amendments to Part 4 of the Finance Act 2003: general
538


Repayment must be claimed by amendment of the land
transaction return made in respect of the agreement.
      (5)
In this paragraph “substantially performed” and “completed”
have the same meanings as in section 44 (contract and
conveyance).
5
Assignment of agreement for lease
12B   (1)
This paragraph applies, in place of section 45 (contract and
conveyance: effect of transfer of rights), where in England and
Wales or Northern Ireland a person assigns his interest as lessee
under an agreement for a lease.
10
      (2)
If the assignment occurs without the agreement having been
substantially performed, section 44 (contract and conveyance) has
effect as if—
(a)
the contract were with the assignee and not the assignor,
and
15
(b)
the consideration given by the assignee for entering into
the contract included any consideration given by him for
the assignment.
      (3)
If the assignment occurs after the agreement has been
substantially performed—
20
(a)
the assignment is a separate land transaction, and
(b)
the effective date of that transaction is the date of the
assignment.
      (4)
Where there are successive assignments, this paragraph has effect
in relation to each of them.”.
25
      (5)
In paragraph 16 (surrender of existing lease in return for new lease), at the
end insert—

“Paragraph 5 (exchanges) of Schedule 4 (chargeable
consideration) does not apply in such a case.”.
      (6)
In paragraph 19 (provisions relating to leases in Scotland), for sub-
30
paragraph (2) substitute—
     “(2)
Where in Scotland there is a lease constituted by concluded
missives of let (“the first lease”) and at some later time a lease is
executed (“the second lease”)—
(a)
the first lease is treated as if it were surrendered at that
35
time, and
(b)
the second lease is treated for the purposes of paragraph 9
(rent for overlap period in case of grant of further lease) as
if it were granted in consideration of that surrender.
      (3)
Where in Scotland—
40
(a)
there are concluded missives of let that do not constitute a
lease, and
(b)
the agreement represented by the missives of let is
substantially performed without a lease having been
executed,
45

the missives of let are treated as if they did constitute a lease (“the
notional lease”).