Q&A: stamp duty land tax relief on leasebacks

Croner VIP Tax Team

In this week’s Q&A, Jack Hall, adviser at Croner VIP Tax Team, explains treatment of stamp duty land tax (SDLT) on transactions involving sale and leaseback of property.

Company A is selling a factory to Company B who will lease it back to Company A. What is the stamp duty land tax (SDLT) position on the sale and the leaseback?

The sale and leaseback arrangement is defined as an arrangement under which A transfers or grants to B a major interest in land (the ‘sale’) and out of that interest B grants a lease to A (the leaseback), as set out in section 57A(2) Finance Act 2003 (FA 2003). It is important to note that the sale and the leaseback are each a separate land transaction. All legislation in this article references FA 2003.

On SDLT, relief is available on the leaseback transaction but not on the sale element. The leaseback element of the transaction will be relieved from a charge to tax, provided  the qualifying conditions outlined in s57A(3) are met.

Qualifying conditions are:

• The sale transaction must be entered into wholly or partly in consideration of the leaseback;

• The interest leased back must be an interest out of the original interest;

• The sale leg must be in wholly or partly in consideration of the leaseback, where partly the only other consideration is the payment of money or release from/assumption of a debt;

• There is no transfer of rights under s45 or s45A  involved in the transaction; and

• Where A and B are both bodies corporate at the effective date they are not members of the same group for the purposes of group relief (Schedule 7).

However, where  A and B are members of the same group then group relief will override sale and leaseback relief, and both transactions will be exempt from SDLT.

For detailed guidance on sale and leaseback relief see Croner Direct Tax In-Depth at 70-100.