Commercial Property e-Brief – Recent developments in sub-sale duty land tax relief

Friday 31st August 2012

HMRC have recently issued a warning that it will be looking for what they have termed “contrived schemes” that seek to exploit sub-sale relief.

HMRC’s warning notice states that “where HMRC find property sale arrangements that have been artificially structured to avoid paying the correct amount of SDLT these will be actively challenged through the courts where appropriate”. This may include the use of the anti-avoidance legislation to counter the effect of any arrangements that limit the payment of SDLT where a scheme is artificial.

Therefore when considering a property deal that involves the use of sub-sale relief, the key issue to consider is whether or not there is a genuine commercial reason for the deal to be structured that way or whether the structure is simply a method of tax avoidance.


Sub-sale relief was introduced to ensure that, where a transaction is structured in stages for genuine commercial reasons, SDLT is only paid once by the person or entity that ultimately owns the property involved. That avoids anyone through whom the property passes also having to pay SDLT as long as certain rules are followed.

There are essentially two structures that involve the use of sub-sale relief. The first can be called a “conventional sub-sale”. The second structure uses two transfers and so is often called a “two-transfer structure”. Slightly different rules on the availability of sub-sale relief apply to each:


This involves a contract for A to sell a property to B. However, before B takes a transfer of the property, he contracts to sell it on to C. In this case, A is aware of the second contract so at completion a transfer of the property is made directly from A to C.

To get sub-sale relief here the contract between A and B must not be “substantially performed” before the contract between B and C is “substantially performed”. Substantially performed has a particular meaning for SDLT. In practice on this sub-sale structure it means that B must not pay 90% or more of the purchase price or be allowed to go into possession of the whole or a substantial part of the property. On the conventional sub-sale structure it is relatively easy to comply with these requirements.


This occurs when B does not wish A to know that it is selling the property immediately on to C. Therefore there cannot be a transfer between A and C. Instead, A will transfer the property to B and B will transfer to C. There are now two transfers but sub-sale relief is still possible. HMRC accepts that where both contracts are completed as part of the same transaction, the two subsequent transfers are held to have been completed simultaneously. The effect of this is that the first contract is effectively disregarded for SDLT purposes. No SDLT is therefore payable by B on the A to B transfer and it is only C that is required to pay SDLT in respect of its transfer from B.

However, in order to claim relief on the two transfer structure substantial performance or completion of the original contract between A and B must be at the same time and in connection with the substantial performance of the second contract between B and C. In practice, this means ensuring that there is no intervening event between completion of the two contracts. Ideally, B should pay for the A to B transfer out of funds provided by C and both transfers completed simultaneously (usually achieved by suitable undertakings between the solicitors to B and C).


Sub-sale relief is still an effective way of minimising SDLT liability for transactions that take advantage of the relief for genuine commercial reasons. However, the transaction must be structured with care to ensure that sub-sale relief will apply.

Rachel Thompson is a solicitor in Gordons LLP’s Commercial Property team with specific expertise in property finance and property insolvency work. If you have any queries or would like further information on the issues covered in this e-Brief, please contact Rachel on 0113 227 0308 or at