The Stamp Duty Land Tax (SDLT) issues arising out of a surrender and regrant of an agricultural tenancy can be complicated, especially where the tenancy has inherent value. John Shallcross has published a paper explaining the issues.
Surrenders and regrants of agricultural tenancies are sometimes undertaken for estate planning reasons so as to improve the inheritance tax position of the landlord (especially to achieve improved agricultural property relief from IHT) where a tenancy under the Agricultural Holdings Act 1986 has substantial value. The tenancy is sometimes replaced with another AHA tenancy, or alternatively with a farm business tenancy. The TRIG reforms made it easier to grant a replacement protected agricultural tenancy.
The surrender and regrant is in principle an “exchange of land interests” for the purposes of SDLT with each of:
- the landlord taking the surrender of the old AHA tenancy and
- the tenant taking the grant of a new AHA tenancy or an FBT
being potentially liable to SDLT on the inherent value of the land interest acquired (as well as any payments made to the other party).
There is an exception to the SDLT market value “exchange of land interests rule” if the parties to the surrender match the parties to the new lease; but there are traps to look out for, especially where is a change of tenant, where a partnership is involved or the property interests are held on bare trust.
There could also be SDLT for the tenant to pay on the net present value (NPV) of the rent payable under the new FBT or AHA 1986 tenancy. The NPV of the rent does not benefit from surrender and regrant “relief”.
The “growing lease” treatment can apply to a lease with security of tenure. For example an FBT granted for a term of six years at a rent of £20,000 would not initially require notification as the NPV is below the threshold of £150,000. However if the lease runs on, then the lease is treated as being for a year longer on each anniversary. So at the end of sixth year it is treated as a lease for seven years, at the end of the seventh year as a lease for eight years and so on. The first land transaction return will be needed as a consequence of the eighth anniversary (when it is deemed to be a nine year lease) which first takes the net present value over £150,000 and causes SDLT to be payable.
The more detailed paper includes references to:
- A different market value rule which might apply under Finance Act 2003 section 53 if one of the parties is a company “connected” to the other party.
- The treatment of “triangular exchanges” (where the landlord who takes a surrender from one tenant and grants a lease to another tenant is caught by the exchange rules).
- The special statutory rules about bare trusts and the limits of statutory fictions where they produce unjust or absurd results (the Marshall v Kerr case).
- The statutory wording in the “exchange of land interests” provisions about the parties acting “alone or jointly” and how that works where a new tenant is added, including discussion of a restricted meaning to the “alone or jointly” wording following the issue arising at a Working Together Steering Group meeting with HMRC on 5 September 2019.
This blog is intended for general information purposes only and do not constitute legal or professional advice. Advice should be sought before proceeding with any transaction. For professional advice on SDLT, please get in touch.
Originally posted by John Shallcross on 28 October 2019.
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