Specific rules apply where a contract is entered into whereby one party to the contract (B – the other party being A) has the right to direct a conveyance to themself or to a third party (C). An example of this is a development agreement or a building licence agreement where the developer has the right to enter onto the land and build on it and then direct the conveyance of the completed plots. In this case the effective date of the transaction is the date when the contract is substantially performed by B.
If the chargeable interest is conveyed to C at B’s request or direction without B having taken possession or completed, then there is only one land transaction, that between A to C. However, if the contract is substantially performed by B, B is treated as having acquired a chargeable interest and entered into a land transaction.
Whether or not a LBTT return is required to be made to us depends on whether or not it is a notifiable transaction (see LBTT4003). The consideration given, or that is to be given, by B is charged to LBTT once substantial performance occurs.
Where B directs the original seller (A) to convey a plot to C, the rules above about ‘contract and conveyance’, ‘completion without substantial performance’ and ‘substantial performance without completion’ apply to the contract between B and C and to the conveyance from A to C. The result is that C is liable to pay LBTT on the consideration paid to A or B, either on completion or on substantial performance.
Worked Example
Parties Yellow and Orange agree in a contract that Yellow will provide land for Orange to build new homes.
Yellow and Orange agree that Yellow will transfer the homes to buyers found by Orange,
Orange agrees to pay A £1.5 million with an initial deposit of £150,000
The effective date will be the day that Orange takes possession of the land and starts building the homes.
At that point, LBTT is due to be paid by Orange on the agreed consideration of £1.5 million.
Once the homes are built, Yellow transfers ownership of each one to the buyers, each of whom will pay LBTT at the appropriate rates.
Ref ID
LBTT1006
Archive Date
Last updated