What is Sub-sale relief?
Stemming from the Finance Act 2003, an intermediary can claim SDLT relief, where they simultaneously complete on (a) an acquisition of land and (b) the onward sale of that land (or part thereof) where it is a like-for-like transaction. For example, a freehold to freehold or a head leasehold to head leasehold sub-sale.
The purpose of this relief, when claimed, is to prevent double taxation under the SDLT rules where there is a sale to an initial buyer, and then an immediate secondary sale is made from the initial buyer to an end buyer. If the relief is not claimed, SDLT would be owed on each sale. This relief, therefore, prevents the initial buyer from paying unnecessary SDLT.
Sub-sale relief can be granted in the case of a sub-sale or an assignment of rights, however, this article will focus on the more common sub-sale. Scotland and Wales have their own rules dealing with sub-sale and we leave those aside for now.
A common mistake – subleasing
It is becoming more prevalent for developers to fall foul of the like-to-like transaction rule. A common scenario is entering into a sublease in order to pass on the responsibility of maintaining the land whilst retaining control over the same. However, for SDLT purposes, the grant of a sublease from a headlease is not considered to be a like-for-like transaction. Consequently, the grant of such a sublease would render sub-sale relief ineligible for a developer using this strategy and SDLT would be due on both transactions.
Therefore, one rough rule of thumb for developers to keep in mind, in this regard, is that if their strategy results in them retaining an interest in the land, then sub-sale relief may likely not be available.
So, where sub-sale relief is to be relied upon it is essential to structure your transaction so that the like-to-like rule is observed. You must also take care over timing the performance of a transaction, as a sub-sale must be immediate, otherwise your transaction could be subject to double SDLT.
