Residential Property Threshold
The threshold for stamp duty land tax (SDLT) on residential property has been raised from £120,000 to £125,000. As a result of this change, SDLT will not be charged on transactions in residential property if the chargeable consideration does not exceed £125,000. Tax will be payable at 1% where the consideration exceeds £125,000 but does not exceed £250,000. The change in threshold applies to transactions with an effective date on or after 23 March 2006. The effective date is normally the date of completion, not the date of exchange of contracts.

Simplification and Clarification of the Law
Finance Bill 2006 will introduce some measures to simplify and clarify various aspects of SDLT. These measures will take effect on Royal Assent. In addition, regulations have been made which will take certain transactions outside the scope of SDLT. These have effect from 12 April 2006.

The regulations will deem that the following features of common land transactions are not chargeable consideration:

• a gift of property on which the donee or beneficiary agrees, or is required, to pay any capital gains tax or inheritance tax arising;
• the payment of a landlord’s reasonable costs on the grant, variation or termination of a lease; and
• a covenant by an agricultural tenant to assign entitlement to the Single Farm Payment to the landlord on termination of the tenancy.
• The measures to be introduced by Finance Bill 2006 will:
• remove the SDLT charge on a transfer of an interest in a partnership whose main activity is the carrying on of a trade (other than a trade of dealing in or developing land) or a profession;
• remove a potential double charge on partnerships;
• clarify the rules on ‘successive linked leases’ in cases where an agreement for lease is followed by the grant of a lease;
• simplify the rules on variations in rent;
• clarify the treatment of rent reviews in the case of agricultural tenancies, as well as the treatment of ‘interim rents’ in the case of business tenancies;
• simplify the treatment of ‘backdated’ leases which are expressed to commence immediately after the expiry of a former lease;
• clarify the rules on notifying assignments of leases; and
• ensure that no SDLT charge applies to transfers of assets between sub-funds of a settlement.

Withdrawal of Unit Trust ‘Seeding Relief’
HMRC have announced the withdrawal of the exemption from SDLT that applied when property was transferred into a newly formed unit trust in consideration for the issue of units. The withdrawal of ‘seeding relief’ takes effect for all transfers into unit trusts on or after 22 March 2006, although there are transitional arrangements for contracts entered into before 2 p.m. on that date. As a result of the withdrawal of ‘seeding relief’, the general rules on chargeable consideration apply so that the consideration for the issue of units is the market value of the property transferred. FA 2003, s 53, which deems the chargeable consideration to be no less than market value where the transaction involves a connected company, is extended to transfers to trustees of a unit trust scheme. However, there are two circumstances in which that section does not apply. The first is where the transfer is effected in pursuance of a contract entered into and substantially performed before 2 p.m. on 22 March 2006. The second is where the transfer is in pursuance of any other contract entered into before that time, provided that the transfer to the trustees is not ‘an excluded transaction’. This is an anti-avoidance measure. The definition of ‘excluded transaction’ is drafted so as to preclude attempts to obtain ‘seeding relief’ by varying contracts, and assigning rights in contracts, existing before 2 p.m. on 22 March 2006.

Extension of Alternative Finance Reliefs
There will be an extension of the reliefs currently available to individuals who purchase land and buildings using alternative financing arrangements. Such arrangements are normally structured to preclude the payment of interest. Relief is given to ensure that the SDLT chargeable is no more than would be chargeable under more traditional loan finance arrangements. These reliefs are currently only available to individuals but, with effect from Royal Assent to Finance Bill 2006, they will be extended to all persons, so that companies, clubs and trusts can also take advantage of alternative financing arrangements.

Stamp Duty Reconstruction Reliefs
The rules governing relief from stamp duty for certain company reconstructions and acquisitions are to be amended. One of the conditions for relief is that the registered office of the acquiring company should be in the UK. This condition will be removed so that, provided the other conditions are met, the reliefs will be available to acquiring companies worldwide. Another condition for relief is that, after the acquisition has been made, there should be no change in the proportion of the company or its business that is owned by each shareholder. The rules will be amended so that the relief is preserved in cases where the proportion of shares held by each shareholder in the new structure has to change slightly for practical reasons. These changes take effect from Royal Assent to Finance Bill 2006.