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 and person purchase a property as owners in common whereby the person is granted a right to exclusive occupation by the financial institution and has the right for the interest held by the financial institution to be transferred to them in one or a series of transactions.
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.
This parity is achieved by relieving the second transaction (the right to occupation), and the subsequent transfer(s) of the financial institution’s interest, from LBTT and disapplying the substantial performance tests in the LBTT(S)A 2013.
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relief (see LBTT3030) or acquisition relief (see LBTT3031) is available for the first transaction or has been withdrawn from the first transaction; or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 and person as owners in common) 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 whom the interest was acquired under the arrangements described above and the arrangements were entered into between it and the person (the second case).
Relief from LBTT may be claimed by the person on the second transaction (the agreement of the right to exclusive occupation), if all the requirements relating to the first transaction are complied with, including payment of any amount of LBTT due on the first transaction. There are no other requirements to obtaining the relief on the second transaction.
For further transactions (that is, transactions subsequent to the second transaction) – where:
- the person exercises the right in the agreement to require the financial institution to transfer the interest in the property (as part of the further transaction); and
- the property is transferred to that person,
then relief from LBTT may be claimed by the person on the further transaction if all the requirements relating to both the first and second transactions are complied with, and at all times between the second and further transaction:
- the chargeable interest purchased under the first transaction is held by a financial institution and the person as common owners; and
- the land is occupied by the person who agreed the exclusive right occupation with the financial institution.
The agreement under a further transaction is not to be treated:
- as substantially performed unless and until the whole interest purchased by the financial institution under the first transaction has been transferred, (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).
A further transaction to which the relief applies is not a notifiable transaction unless the transaction involves a transfer to the person of the whole interest purchased by the institution under the first transaction so far as not transferred by a previous further transaction.
The relief is not available:
- if the financial institution transfers the property to a third party not involved in the original arrangements; or
- if during the time the arrangements were in place the property was not held by a financial institution and a person as owners in common.
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 and the owners as common owners) 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 second transaction (the agreement between the financial institution and the person under which the person has an exclusive right to occupy the land) ceases to have effect; or
- the further transaction (the right of a person to require the institution to transfer the whole 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 or reconstruction and acquisition relief.
The rules about exempt interests do not make either the first transaction itself or the further 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.