HMRC has recently indicated that the SDLT legislation as it applies to leases granted to nominees (or "bare trustees", as the legislation refers to them) may be amended to disregard nominees and instead look through to the beneficial entitlement to the lease or reversion when determining the parties to a lease for SDLT purposes. This would remove certain anomalies and bring this legislation into line with the treatment of nominees for the purposes of SDLT more generally.
Currently no "look through" of nominees on grant of a lease
The general rule for SDLT purposes is that one looks through a nominee to the beneficial owner for the purposes of deciding who the purchaser is and who is liable to pay SDLT. However, this rule is disapplied on the grant of a lease.
The legislation deeming a nominee to be the vendor or purchaser where a lease is granted was introduced in 2005 to counteract a tax avoidance scheme which would be highly unlikely to be successful today due to additional anti-avoidance legislation that has been enacted since that date, such as the legislation contained in sections 75A-C of the Finance Act 2003, and which was in any case of questionable technical merit at the time.
This deeming legislation can cause problems in the application of other parts of the SDLT code, most notably in relation to certain sale and leaseback arrangements, the surrender and regrant of a lease and the application of the partnership legislation in schedule 15 of the Finance Act 2003.
HMRC has conceded that it receives a significant number of clearance applications in all of those areas in which the uncertainty cited by the taxpayer is caused by the deeming provisions around nominees and the grant of a lease.
Potential change in law
We attended a meeting called by HMRC Stamp Taxes policy and technical personnel to discuss possible amendments to the SDLT legislation as it applies to nominees and the grant of leases.
HMRC is considering amending the law and returning the state of affairs to its original position where a nominee is disregarded in all circumstances, including on the grant of a lease. We will provide an update when further details become available.
HMRC did say that its view on sale and leaseback arrangements involving nominees was that the availability of relief from SDLT on the leaseback leg of the transaction should not be prevented because of the presence in the transaction structure of a nominee and it cited the case of Marshall –v- Kerr as authority for its view that a deeming provision can only be applied to the extent that it does not cause absurdity or unfairness. On that basis, where a nominee grants a leaseback to the vendor, HMRC still views relief as being available. However, this view has not been consistently applied by HMRC and the sooner the anomaly in this area is removed by a change in the legislation, the better.
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