Tuesday, October 9, 2012

Stamp Duty Land Tax - Linked Transactions

What are "Linked Transactions"?
Where two or more transactions are deemed to be "linked" then the consideration on which the tax calculation is based is the aggregate of the considerations pay in each transaction. This will lead to tax being charged at a higher rate where the aggregate consideration is above the threshold of any of the individual considerations.
Two transactions may be considered to be linked if they are either between the same parties or between connected parties and together they form a single arrangement. The term "connected" parties is quite broad and can include relatives, spouses, partners (romantic or business) or even friends. There are two main ways in which a linked transaction can arise.

Linked Transaction Example 1 - Two Parcels of Land are Part of one Property
Let's say Mr and Mrs Smith decide to buy 1 Nowhere Street from Mr Jones but rather than buy it as a whole, Mr Smith buys the house for £120,000 and Mrs Smith buys the garden for £60,000. Individually no duty would be payable for either transaction as they are both below the £125,000 minimum threshold but based on the aggregate consideration of £18,000, £1,800 would be payable (1%).
Mr and Mrs Smith are clearly connected since they are husband and wife and they are both buying from the same seller, Mt Jones. Do the transactions form a single arrangement? Well, it is unlikely that they would want to buy, or that Mr Jones would want to sell, either the garden or the house alone, so the deal in reality is that the Smiths will buy 1 Nowhere Street for £180,000. It makes no difference from a stamp duty point of view that there are two contracts and two transfers.

Linked Transaction Example 2 - Buying a Portfolio of Properties
 Another way in which transactions can be classed as linked is if the same or connected parties are involved in a series of dependent transactions. For example, Mr White is a property investor and Mr Black is a is builder. Mr Black builds three properties and markets them for £200,000 each. Mr White makes an offer of £540,000 for all three and Mr Black accepts but on the condition that Mr White does buy all three. He will not sell just one property for £180,000 or just two for £360,000. Mr White agrees to buy the three properties at intervals of two months.
If these transactions were dealt with individually then the total duty would be £5,400, as duty would be charged at 1% of £180,000 on each one. If however the aggregate of the three considerations is taken to be the total consideration for tax purposes (i.e. £540,000) then the duty payable would actually be £21,600 because it would be payable at 4%. It is the higher figure that would be due in this case because, although the three transactions do not happen simultaneously, there is in effect an agreement in place to buy three properties for £540,000. If the price per property was £180,000 whether or not Mr White purchased all three then the transactions may not be considered to be linked.

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