This relief is provided by the relevant provisions of schedule 7 to the LBTT(S)A 2013.
Description of relief
This form of the relief applies where a financial institution buys a property (the first transaction), leases or sub-leases it to a person (the second transaction) and agrees that at the end of that term it will transfer the property to that person (the third transaction).
As a series of land transactions take place under these arrangements the effect of the relief is to bring the amount of LBTT payable on the purchase of a property using these arrangements in line with the amount of tax that would be due where a purchase is made using a conventional mortgage product.
The parity is achieved by relieving the second (lease) and third (eventual transfer to the person) transactions from LBTT and disapplying the substantial performance tests. These rules ensure that, where the arrangements are completed in the manner provided for, and all the other rules are complied with, only one LBTT charge is payable (although as explained below, in certain circumstances relief for the first transaction may also be claimed).
This form of alternative property finance relief is not available:
- where either group relief (see LBTT3025), reconstruction relief (see LBTT3030) or acquisition relief (see LBTT3031) is available for the first transaction or has been withdrawn from the first transaction; or
- where the alternative finance arrangements involve arrangements or connected arrangements for someone to acquire control of the financial institution even if the arrangements include certain conditions.
‘Connected arrangements’ means any arrangements entered into in connection with the making of the alternative finance arrangements (including arrangements involving one or more persons who are parties to the alternative finance arrangements).
Section 1124 of the Corporation Tax Act 2010 applies for determining who has control of the financial institution.
The relief mechanism
The first transaction (the purchase of a major interest in land by the financial institution) will generally be chargeable to LBTT but relief may be claimed by the financial institution if the seller is:
- the person who enters into the arrangements - the first case; or
- another financial institution by which the interest was acquired under arrangements described above entered into between it and the person - the second case.
Relief from LBTT may be claimed by the person on the second transaction (the granting of a lease by the financial institution to the person) if all the requirements relating to the first transaction are complied with, including payment of any LBTT due on the first transaction. There are no other requirements to obtaining the relief on the second transaction.
Relief from LBTT may be claimed by the person on the third transaction if all the requirements relating to both the first and second transactions are complied with and at all times between the second and third transactions:
- the chargeable interest purchased under the first transaction is held by a financial institution; and
- the lease, or sublease, granted under the second transaction is held by the person.
The third transaction is not to be treated:
- as substantially performed unless and until the third transaction is entered into (thus disapplying the rules about substantial performance); or
- as the grant of an option under the rules about options and rights of pre-emption in section 12 of the LBTT(S)A 2013 (see LBTT1007).
An interest held by a financial institution as a result of the ‘first transaction’ (the acquisition of a major interest in land by the financial institution) is an exempt interest. Any transfer of that interest therefore incurs no tax and is not notifiable to us.
The interest ceases to be an exempt interest if:
- the lease or sub-lease (the second transaction) ceases to have effect; or
- the third transaction (the right of a person to require the institution to transfer the major interest purchased by the institution under the first transaction) ceases to have effect.
The interest held by a financial institution as a result of the ‘first transaction’ is not an exempt interest if the first transaction is subject to a claim for either group relief (see LBTT3025), reconstruction relief (see LBTT3030) or acquisition relief (see LBTT3031).
The rules about exempt interests do not make either the first transaction itself or the third transaction an exempt interest. Relief will be available for these transactions, but the transactions remain notifiable to us.
Claiming the relief
To claim this relief see the guidance on 'How to make a LBTT return and pay tax' which is available separately on our website.