Legal Practice Notes

Relief under the stamp duty rules was recognised for a person who had entered into a contract to acquire an interest in land but, before completion, entered into a further contract to sell or assign the rights under that agreement to someone else. That principle was then carried over into the stamp duty land tax ( SDLT) regime by section 45 of the Finance Act 2003 ( FA 2003) in its original enactment. In effect, the section averted a charge that would otherwise have arisen where a chargeable interest was acquired at the same time as the same interest was disposed of to another person. It was mainly relied upon for sub-sales, yet because the original text spoke of a ‘transfer of rights’, it also extended to other dealings, including the assignment of rights. Nonetheless, the section was used within a range of SDLT...

This Practice Note This Practice Note sets out the special stamp duty land tax ( SDLT) provisions that apply where an interest in land is transferred from a partnership to a partner, or to a person connected with a partner, including dealings on the dissolution of a partnership. Special SDLT rules apply in the following circumstances: where a chargeable interest is transferred to a partnership from one or more partners, or persons connected with one or more partners, including transfers on the partnership’s formation where value is withdrawn from a partnership by certain parties within three years following such a transfer, as referenced in the preceding bullet where a chargeable interest is transferred from a partnership to one or more partners, or persons connected with one or more partners, including transfers associated with the partnership’s dissolution where a chargeable interest is transferred from one partnership to another and there are...

Chargeable consideration SDLT due on a chargeable transaction is assessed by reference to the transaction’s ‘chargeable consideration’. This Practice Note explains the general meaning of that term for lease transactions, covering how SDLT is worked out on rent, lease premiums and deposits. For how SDLT is calculated on particular lease scenarios—such as linked leases, surrender and re-grant, and variations—see Practice Note: SDLT—common lease transactions. From 1 April 2015, SDLT no longer applies to any land transaction involving interests in or over land in Scotland. From that date, land and buildings transaction tax ( LBTT) applies to such transactions, subject to transitional provisions. Therefore, any references in this Practice Note to ‘ UK land’ or similar expressions, when discussing the application of SDLT, should be interpreted as excluding interests in or over land in Scotland from 1 April 2015. For further details, see the LBTT...

This Practice Note provides an overview of the stamp duty land tax ( SDLT) treatment of the following common lease transactions: grant of a lease linked leases surrender and re-grant of a lease agreement for lease assignment of an agreement for lease reverse premium assignment of a lease variation of a lease surrender of a lease lease to a bare trustee or nominee reversionary lease For general guidance on when SDLT is in point, refer to Practice Note: SDLT—land transactions, chargeable interests and chargeable transactions; and for the method of computing SDLT due on lease arrangements, see Practice Note: SDLT chargeable consideration—leases. This Practice Note excludes leases and holding over. For additional detail on that area, consult Practice Note: SDLT—holding over. From 1 April 2015, SDLT no longer applies to any land...

Property investment partnerships ( PIPs) This Practice Note outlines the particular stamp duty land tax ( SDLT) regime relevant to property investment partnerships ( PIPs). It clarifies what the term covers and how PIP classification impacts the SDLT liabilities of the partnership itself and the partners. In essence, a partnership counts as a PIP where its main business is investing in or dealing with—meaning holding or exploiting—chargeable interests. The overarching outcome of the rules is that buying an interest in a PIP is treated as though a comparable interest were acquired in specified property held by the PIP. Only certain property is brought into this calculation, so every transaction must be considered against the detailed provisions. Transfers of interests in partnerships that are not PIPs trigger SDLT only in exceptional situations. By contrast, the transfer of an interest in a PIP is treated as a...

Resulting trusts represent one of the three species of trust that do not need to be declared or evidenced in writing at all. The others are constructive and implied trusts, though it is arguably doubtful whether any implied trust exists that is not in reality either a resulting trust or a constructive trust (‘implied’ in this setting often being used simply as a synonym for ‘resulting’ or ‘constructive’). Categorisation of resulting trusts Resulting trusts are either presumed or automatic. A presumed resulting trust arises where: there is a voluntary transfer of property by one person to another; or title to property is placed in the name of someone other than the person who provided the purchase money or other consideration for the acquisition An automatic resulting trust arises where the disposing party has failed to dispose of the entirety of their legal and...

Non-discrimination and Article 24 of the OECD model convention Non-discrimination, as a concept, is generally used to describe the avoidance of one person being treated more harshly than another, typically on grounds that are agreed to be unjustified, in situations where those persons are regarded as being in comparable circumstances. Article 24 of the Organisation for Economic Co-operation and Development ( OECD) model tax convention ( OECD MTC) is concerned with removing tax discrimination by setting out specific protections that apply to particular groups of persons, shielding them against particular categories and types of tax-related discrimination within the convention......

Loan relationships—the main tax rules As set out in Practice Note: Loan relationships—the main tax rules, the overarching principle is that credits and debits (in broad terms, profits and losses) that arise to a company from its loan relationships are recognised for corporation tax under the loan relationships regime by reference to the company’s accounting assessment of profit and loss, as presented in the company’s relevant accounts prepared in accordance with generally accepted accounting practice ( GAAP). Put another way, GAAP-compliant accounts provide the mechanism by which the presence, quantification and timing of taxable amounts connected to a company’s loan relationships are determined for corporation tax purposes. This approach is commonly described as ‘tax following the accounts’. The statutory rules governing the taxation of loan relationships are found principally in Part 5 of the Corporation Tax Act 2009 ( CTA 2009) ( CTA 2009, ss...

Jersey Property Unit Trusts ( JPUTs) Many investors, notably those not resident in the UK, hold UK real estate investments through offshore unauthorised property unit trusts. These trusts are frequently formed in the Channel Islands (commonly Jersey or Guernsey) or the Isle of Man, though they can also be constituted under the laws of other non- UK jurisdictions. For the purposes of this Practice Note, such property unit trusts, wherever set up, are referred to as Jersey Property Unit Trusts ( JPUTs), given the prevalence of Jersey structures. JPUTs gained traction historically because UK real estate could be transferred into a JPUT without triggering stamp duty land tax ( SDLT). This relied on a specific exemption called ‘seeding relief’, which was abolished from 22 March 2006. Section 133 of the Finance Act 2016 introduced a different form of seeding relief, but it is...

Investments trusts Investment trusts are typically organised as companies with no fixed lifespan. As a result, investors generally realise their holding only by selling shares on the relevant stock exchange. The market price may not fully reflect the net asset value ( NAV) of the underlying investments and, in many instances, shares trade at a discount to NAV. To help investors realise full NAV, some trusts are established with a fixed life, meaning the company will be liquidated/wound up on a pre-determined date. Alternatively, liquidation/winding-up can occur in response to shareholder demand, with realised assets distributed to investors even though this was not anticipated at inception. When a winding-up is proposed, there is often a parallel reconstruction, giving investors the option to roll-over their investment into a new vehicle......

This Practice Note sets out: the concept of branch incorporation relief available under UK domestic law in relation to: corporation tax on chargeable gains — see: Branch incorporation relief for chargeable gains, and corporation tax within the intangible fixed assets ( IFA) regime in Part 8 of the Corporation Tax Act 2009 — see: Branch incorporation relief for IFAs the wider UK corporation tax relief on the incorporation of an EU branch following implementation of the Mergers Tax Directive 2009/133/ EC, and some practical points and further tax issues that arise on branch incorporation Relief cannot be claimed under both the branch incorporation provisions and the rules implementing the Mergers Tax...

There is no single, settled definition of the term ‘hedge fund’. Instead, the label functions as a broad catch-all for funds that do not fit neatly within other collective investment categories (eg authorised investment funds or private equity vehicles). Nevertheless, a set of traits is commonly and typically seen among so‑called hedge funds. Where these arise, they would usually, in practice, lead to a fund being treated as a ‘hedge fund’ rather than some other kind of investment fund. In practice, most hedge funds exhibit all, or at least nearly all, of the following characteristics: an open‑ended pooled investment structure a focus on delivering total return to investors a generally opportunistic approach the use of ‘short’ positions extensive leverage (ie borrowing) fee models comprising a fixed management charge and a variable annual performance...

A purchaser can finance the deal through: cash: drawing on its own available cash holdings (or those of its parent or another group entity) debt financing: obtaining funds via a bank loan or by issuing debt instruments to lenders (such as loan notes), or equity financing: raising capital through a further issue of its equity securities, by way of an open offer, rights issue, cash placing, cash box placing or vendor placing Debt or equity?......

In numerous real estate sales and purchases, the agreed consideration often contains an overage element. There are various ways to structure overage. Its direct tax position turns on the chosen structure and the respective tax profiles of payer and recipient. This Practice Note reviews the main forms of overage and how direct taxes apply to both seller and buyer. Overage payments also affect SDLT and VAT, sometimes strongly enough to dictate the deal structure. Those issues fall outside this Note. For VAT, see Practice Note: VAT treatment of overage; for SDLT, see Practice Note: SDLT chargeable consideration — overage payments. In this Note, income tax references encompass corporation tax on income, and CGT covers both capital gains tax and corporation tax on chargeable gains. What is overage? Overage refers to a situation where the seller (usually, but not always, of land) keeps a right to...

What are the methods of raising finance? When a corporate entity seeks funding, it must decide whether to borrow from creditors or issue shares on the equity markets. The choice hinges on several factors, including the preferences and requirements of prospective creditors/investors, and the characteristics of the entity raising capital. For a comparison of obtaining funds through debt versus issuing equity, see Practice Note: Debt securities and equity compared. Loans versus debt securities Loans appear in many guises. A straightforward, frequently used facility is an overdraft. In commercial finance, other common options include: Term loans Revolving credit facilities Lending can be provided by a single lender (bilateral) or a group (syndicated or club deals), and may be secured or unsecured. It can support both short-term and long-term requirements. For more detail, see: Types of...

Connected companies relationships Within the loan relationships regime in Part 5 of the Corporation Tax Act 2009 ( CTA 2009), tailored provisions govern loans between ‘connected companies’. In that Part, they are termed ‘connected companies relationships’, being the label used for connections......

Offence of cheating the public revenue The offence of cheating the public revenue is a common law crime triable solely on indictment. Consequently, where the public purse is the victim, the fraud will invariably be heard in the Crown Court, even though an equivalent matter between private individuals might be suitable for summary trial. Section 32(1)(a) of the Theft Act 1968 ( TA 1968) preserves this offence whilst abolishing cheating in general. In R v Dosanjh, the Court of Appeal concluded that it is reasonable to infer that Parliament intentionally left the common law offence unaffected by statutory reforms in this area, recognising that doing so was appropriate for the protection of the public. In that case, the Court of Appeal further held there was sound reason to prefer charging the common law offence in relation to ‘missing trader...

Where assets are transferred, rather than shares, and this conveys a trade or other qualifying activity, the plant and machinery capital allowances regime may produce balancing charges — effectively negative allowances, often called a ‘claw-back’. Such a balancing charge lifts taxable profits and creates an extra tax burden for the business concerned. Statute includes routes to prevent that result in particular commercial circumstances, provided specified conditions are fully satisfied and the relevant criteria are met under the rules......

What does this Practice Note cover? This Practice Note describes the duties and functions of a bond trustee appointed under an English law trust deed for a bond issue. A trustee is not a feature of every bond offering. Some issues proceed without one. The issuer chooses whether to use a trustee or a fiscal agent—see Practice Note: Parties in an issue of debt securities— Fiscal agent or trustee. Bringing in a trustee has significant implications for the issuer and for bondholders (see: Reasons for appointing a trustee below). In this Practice Note, ‘bonds’ is used as a catch-all term for debt securities of all kinds (such as bonds, notes and commercial paper). Be aware, however, that alternative considerations can arise in structured finance deals. For an explanation of the difference between ‘bonds’ and ‘notes’ and the definition of ‘commercial paper’, see Practice Note: Types of debt...

Trusts and trustees A trust can be created for many purposes and to pursue different aims. What virtually all trusts share, however, is the presence of a trustee, or a number of trustees (the trustee). The trustee’s principal role is to hold and administer the trust’s property. The scope of the trustee’s authority and duties is ordinarily described in a formal trust instrument, for example a trust deed (the trust deed). Read together with the general law, the trust deed will specify, among other matters: the trustee’s powers and obligations, and any restrictions on the trustee’s powers and obligations A trust that owns shares in a private company is most often structured as either a discretionary trust—through which different members of the immediate or wider family may receive benefits—or an employee trust in practice within private company...