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In the December pre-Budget report, the government introduced a range
of anti-avoidance measures (in a new s75A). In essence, s75A applies
where (i) there is a disposal and an acquisition of land; (ii) there are a
number of connected or ‘scheme’ transactions; and (iii) the total SDLT
paid is less than would have been paid had the seller sold directly to the
buyer. If s75A applies then the SDLT is charged as if the sale had been
direct from the seller to the buyer.
But, on 1 February HMRC beat a hasty retreat from the full scope of
s75A. This is because it soon became clear that many straightforward
construction contracts were being caught by s75A. In particular, it is now
clear that it will not apply to construction contracts that come within the
scope of Prudential [1992] (ie ‘the consideration properly attributable to
the construction contract is not part of the chargeable consideration to
the land transaction’). Thus, where a selling developer contracts to sell
bare land but also, as a separate transaction, contracts to construct a
building on the land for a buyer, then SDLT will continue to be only
payable on the land element (and not on the land plus the construction
costs). In addition, other relaxations have been made in connection with
various other construction contracts.
It is a complex area and practitioners need to refer to the detailed HMRC
guidance. What is clear, however, is that many innocent construction
contracts were suddenly caught by s75A, and HMRC have now
recognised that mistake. In the meantime, anyone who has submitted
an SDLT land transaction return and paid tax on the basis of s75A
should review the transaction in the light of the 1 February guidance,
because a refund of SDLT may now be due.
However, although much attention has been focused on the short-term
problem of construction contracts wrongly caught up in s75A, the fact
remains that these new anti-avoidance provisions will largely remain in
force and will inevitably outlaw most artificial, marketed schemes.
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