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7. STAMP DUTY LAND TAX (SDLT) and CAPITAL GAINS TAX (CGT)
7.1 Submitting Returns and paying SDLT
You are required to draft and submit all Stamp Duty Land Tax Returns (Return) and pay any SDLT due to HMRC within the relevant time frame.
A return is required for each disposal.
You will need to provide copies of all Returns to the Bank's solicitors to review and approve. In relation to the Return where the Bank is the purchaser, the Bank's solicitors will be noted as the agent and the Bank's solicitors will confirm that the Return is satisfactory and provide you with authority to submit this on the Bank's behalf. The Bank will not sign the Return unless you are submitting a postal Return.
You will need to provide the Bank's solicitors with the SDLT5s for each Return in accordance with your completion undertakings.
Please note the following:
a) There are usually three stages for each transaction:
i. the transfer of the property from the Client/seller to the Bank;
ii. the Lease from the Bank to Client; and
iii. the transfer from the Bank to the Client on maturity.
b) On a refinance, all three stages (i) to (iii) are exempt from SDLT under the alternative property financing rules (refer to the Finance Acts). In box 9 of the Return, the answer will be 'yes' and the code will be 24 and boxes 14-15 will be £0.00 as no SDLT will be payable.
c) On a purchase, stage (ii) and (iii) are exempt from SDLT under the alternative property financing rules however stage (i) (where it is a transfer from the seller to the Bank) attracts SDLT in the usual way and is payable by the Client.
d) If on maturity, if the Client sells the property and the Bank is required to transfer it to a third-party buyer, the buyer will pay SDLT in the usual way. If the Client is not selling the property and the Bank is required to transfer it back to the Client, the Client will not be required to pay SDLT (see paragraph (b) above).
e) If the Client is buying a new build property and the developer is unable to grant the lease directly to the Bank, there will be an additional stage (making it four stages). In which case, SDLT is payable on the initial lease/sale from the developer to the Client, and the remaining three stages (i) to (iii) above are exempt.
The Land Registry's Practice guide 69 deals with Islamic Finance and SDLT on Diminishing Musharakah at section (3)(2).
You may also wish to refer to the Finance Acts which contain provisions on alternative financing and the tax treatment here.
7.2 SDLT Additional Relief
If you are proposing to use any relief other than code 24 (e.g. group relief or multiple dwellings relief) you are required to expressly provide the Bank's solicitors with a copy of the tax advice received by the Client confirming why the relief has been sought and on what grounds for our information only. The Bank's solicitors may need to refer this to their tax team for comments.
7.3 SDLT Rebates
Please advise your Client that it is their responsibility to trigger the process where an SDLT rebate is applicable. Your Client/your firm should advise the Bank/the Bank’s solicitor as soon as you become aware that a rebate is to be applied for.
7.4 Capital Gains Tax (CGT)
In respect of refinancing under a purchase plan, a share in the property to be financed is sold by the customer to the Bank (this share is then leased by the Bank to the customer). We understand that, on a strict reading of legislation, there is a potential capital gains tax charge triggered by this sale if it is deemed a disposal for CGT, there has been a gain in value for the customer since the property was purchased and no exemption, such as private residence relief, applies.
The customer should be advised, if they deem it necessary, to seek their own tax advice or make representations to HMRC in this regard. We are happy to provide details of the financing structure to assist with this.
7.5 Tax Planning
It is the customer’s responsibility to declare any tax planning at the outset and the Bank reserves the right to take further advice on the same, at the customer’s cost.
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