Summary and implications

Following the recent Pollen Estate Court of Appeal decision, legislation has been introduced in the Finance Bill 2014 regarding the SDLT relief available to a charity where it purchases a property jointly with a non charity purchaser.

The changes make it clear that:

  • SDLT relief is available on a charity's share of a property as long as the charity uses the "greater part" of its share for a charitable purpose;
  • the amount of SDLT relief is calculated with respect to the proportion of the overall purchase price paid by the charity or the proportion of the charity's share in the property, whichever is lower; and

SDLT is payable by the non-charity purchaser, on its share of the property only, at a rate determined by the combined price paid by the charity and non-charity purchaser

Related item:

Charities can claim relief from SDLT on a joint purchase

Our briefing on the Pollen Estates case. More

Background

The Court of Appeal in Pollen Estates held that when a charity purchased a property jointly with a non-charity purchaser, it could claim SDLT relief on its share of a property.

The Court of Appeal reached this decision by "reading in" its own further wording to the existing legislation providing for SDLT relief when a charity is a sole purchaser of a property. HMRC were concerned that this judgement could be exploited to avoid SDLT.

HMRC's particular objection, raised during the case, was that there was no mechanism in the legislation to determine the share of the charity's interest in a property in order to determine the amount of relief. The judge in the case did not consider this a valid objection, noting that it could not be an insurmountable issue as there was also no mechanism for calculating the "greater part" when determining whether the "greater part" of the charity's interest in land is used for "qualifying charitable purpose" in order to claim the relief.

HMRC has now introduced legislation to close off their perceived issues with the decision and introduce a mechanism to determine a charity's share of a property. Interestingly, HMRC has not chosen this opportunity to clarify the meaning of "greater part" to address the issue noted by the Court of Appeal.

New rules

The new rules make clear that SDLT relief is available to a charity on its share of a property as long as the charity uses the "greater part" of its share for a charitable purpose.

To ensure the relief does not allow that non-charity purchaser to benefit from this relief and avoid SDLT, the share of the purchase price attributed to the charity, and on which relief is given, is based on the lower of the proportion of:

  • the price paid by the charity compared to the non-charity purchaser; or
  • the charity's share in the property compared to the non-charity's share.

If the charity ceases to use its share of the property for a charitable purchase within three years of acquiring the property, the charity must pay the SDLT on which it originally received relief.

The explanatory notes further clarify that SDLT is payable by the non-charity purchaser, on its share of the property only, at a rate determined by the combined consideration paid by the charity and non-charity purchaser.

Comment

There is little doubt that in Pollen Estate, the Court of Appeal went out of their way to get the "right" result. The amendments being introduced now are to be welcomed and, given the absence of any planning, one can only wonder why the position was not clarified some years ago.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.