This relief is provided by the provisions of schedule 10A to the LBTT(S)A 2013 which is inserted by the Land and Buildings Transaction Tax (Sub-sale Development Relief and Multiple Dwellings Relief) (Scotland) Order 2015.
Description of relief
The sub-sale development relief is available to the buyer (the ‘first buyer’) in a land transaction involving sub-sale arrangements where significant development is in prospect. The first buyer claims the relief at the point when he or she submits a LBTT return in relation to the land transaction.
The relief is restricted to the first buyer only; it is not available to a second or subsequent buyer where there is a chain of sub-sale arrangements in place.
The sub-sale development relief is available to the first buyer in a contract (the ‘first contract’ – this does not include a contract that is a sub-sale or an assignation of rights in relation to another contract) where the buyer acquires a chargeable interest under which the acquisition is to be completed by a conveyance if:
- there is a qualifying sub-sale; and
- the qualifying conditions are met.
The relief cannot be claimed if relief is also claimed in relation to alternative property finance (see LBTT3017).
A sub-sale is a ‘qualifying sub-sale’ if it is a sub-sale under which:
- the first buyer contracts to sell the whole or part of the subject-matter of the first contract to another person (the ‘second buyer’);
- the second buyer becomes entitled to call for a conveyance to that person of the whole or part of the subject-matter of the first contract; and
- immediately before the first buyer entered into the sub-sale, the first buyer was entitled under the first contract to call for a conveyance of the whole or part of that subject-matter.
The ‘qualifying conditions’ are that:
- the substantial performance or completion of the first contract takes place at the same time as, and in connection with, the substantial performance or completion of the qualifying sub-sale.
In relation to this qualifying condition, an assignation, sub-sale or other transaction (relating to the whole or part of the subject-matter of the qualifying sub-sale), as a result of which a person other than the second buyer becomes entitled to call for a conveyance to that person, is not to be treated as substantial performance of the qualifying sub-sale;
- significant development for commercial purposes of the subject-matter of the qualifying sub-sale will be completed within five years from the date on which the first buyer entered into the qualifying sub-sale.
References in this section of guidance to:
- the ‘subject-matter’ of a qualifying sub-sale are to the chargeable interest, the conveyance of which the second buyer is entitled to call for as a result of the qualifying sub-sale.
Note: references to ‘part of the subject-matter’ of the first contract are to a chargeable interest that is the same as the chargeable interest the first buyer acquires under the first contract, except that it relates to part only of the land concerned.
- ‘development’ include the building of educational, sports and leisure, residential, retail, office or industrial buildings, but not agricultural buildings, mining or engineering works (other than wind farms) or plant and machinery.
It also includes the redevelopment of such buildings, where the redevelopment works carried out are comparable in scale or cost to the construction of such buildings.
In relation to this meaning:
- ‘agricultural’ is something that is used for the purposes of the trade of agriculture. This includes horticulture, fruit growing, seed growing, dairy farming, livestock breeding and keeping, the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds and the use of land for woodlands where that use is ancillary to the farming of land for other agricultural purposes;
- ‘building’ has the meaning given in section 55 of the Building (Scotland) Act 2003; and
- ‘industrial building’ includes a building built to be used for the purposes of a trade carried on in a factory, mill or laboratory, for the purposes of a dock undertaking, for the purposes of the trade of hotel-keeping, or for the purposes of a trade which consists of the operation or management of an airport used solely or mainly by aircraft carrying passengers or cargo for hire or reward.
- ‘significant development’ is development that is significant having regard to, among other things, the nature and extent of the subject matter and also its market value.
The relief is not intended to be available, for example, where an existing building on a site is to be subject to a refurbishment, or where only minor ‘development’ takes place, relative to the nature, extent and market value of the land that is the subject of the sub-sale arrangement.
Circumstances under which full or partial relief are available
Full relief is available to a land transaction (‘the first land transaction’) where the subject-matter of the qualifying sub-sale is the whole subject-matter of the first contract and the land transaction is one that is either:
- effected on completion of the first contract because the transaction is completed without having been substantially performed – see LBTT1005; or
- treated as effected on that contract being substantially performed because the contract has been substantially performed without completion – see LBTT1005.
Partial relief is available where the subject-matter of the qualifying sub-sale is part of the subject-matter of the first contract.
Where this is the case, the chargeable consideration for the first land transaction (see above) = A-B.
- A - is the amount that would otherwise be the chargeable consideration for that transaction were there no sub-sales development relief; and
- B – is the amount of that consideration attributable (on a just and reasonable basis) to the part of the subject-matter of that transaction which is also the subject-matter of the qualifying sub-sale.
Calculating the chargeable consideration for the qualifying sub-sale
The chargeable consideration for the qualifying sub-sale = C+D
- C – is so much of the consideration under the first land transaction as is referable to the subject-matter of the qualifying sub-sale and is to be given (directly or indirectly) by the second buyer or a person connected with the second buyer; and
- D – is the consideration given for the qualifying sub-sale.
This is because the sub-sale transactions can mean that the second buyer pays the first buyer a premium for the sub-sale transactions and may have to pay the first seller some or all of the purchase price under the first contract.
Claiming the relief
To claim this relief see the guidance on 'How to make a LBTT return and pay tax' which is available separately on our website.
When the first buyer claims the relief by submitting a LBTT return, we may ask for specific evidence in support of the claim i.e. that significant development will take place.
Examples of what evidence we might ask to see are:
- development/architectural plans;
- details of funding arrangements;
- building contracts; and
- planning permission applications.
Withdrawal of relief
Full withdrawal of relief occurs if no significant development takes place within five years from the date on which the first buyer entered into the qualifying sub-sale.
Where full withdrawal of relief occurs, the amount of tax chargeable in relation to the first land transaction is the amount that would have been chargeable if the relief had not been claimed.
Partial withdrawal of relief occurs if:
- the significant development proposed does not take place within five years from the date on which the first buyer entered into the qualifying sub-sale; but
- some development of the subject-matter of the qualifying sub-sale has taken place within that period.
Where partial withdrawal of relief occurs, the amount of tax chargeable in relation to the first land transaction is a just and reasonable proportion (taking into account the extent to which any significant development originally proposed has taken place) of the amount that would have been chargeable if the relief had not been claimed.
Where relief is withdrawn or partially withdrawn, the first buyer in the sub-sale arrangement must make a further LBTT return to us within 30 days of the end of the five year period, and pay any tax that is then due.