Guidance on the application of Land Transaction Tax in relation to sale and leaseback relief.
Give us feedback on this guidance
LTTA/7016 Sale and leaseback relief
Sale and leaseback transactions involve a buyer agreeing to purchase a major-interest (freehold or leasehold) in land or buildings from a seller, then that same buyer granting a lease or sub-lease of the land or buildings, or part of them, back to the seller who then becomes the tenant. Both the sale transaction and leaseback transaction are chargeable for LTT. However, subject to certain conditions, sale and leaseback relief provides for the leaseback transaction to be relieved from LTT. Where this relief applies, the sale transaction remains chargeable to LTT.
For sale and leaseback relief to apply to the leaseback transaction, all of the following conditions must be met:
- the sale transaction must be entered into wholly or partly in consideration of the leaseback transaction
- where the sale transaction is partly in consideration of the leaseback transaction, any other consideration for the sale transaction is the payment of money (in any currency) or the assumption, satisfaction or release of debt
- that the sale transaction is not a transfer of rights to a third party or a pre-completion transaction, and
- where both parties are bodies corporate at the effective date of the leaseback transaction, they are not members of the same group for the purposes of LTT group relief.
The sale and leaseback relief is available for both residential and non-residential transactions.
Sale and leaseback relief is available only where the same parties are involved in both transactions. For example, where ‘A’ transfers a property to ‘B’, then ‘B’ leases the property back to ‘A’, ‘A’ must remain the same in both transactions. ‘A’ may be made up of more than 1 person, but if any of these people change between the sale and leaseback transactions, the relief does not apply.
There is no particular requirement for a leaseback transaction to be in consideration of only 1 sale transaction, or for 1 sale transaction to be in consideration of only 1 leaseback transaction for the relief to apply.
The amount of chargeable consideration for the sale transaction will depend upon whether there was a written agreement, at the time of the sale transaction, for the leaseback transaction to be entered into. If there was, the chargeable consideration for the sale transaction should take this encumbrance into account (see example 3 below).
If there is no such agreement, the chargeable consideration for the sale transaction will be based on the unencumbered interest in land (i.e. the value would ignore the leasehold transaction). It should be noted that such an encumbrance may increase, decrease or have no impact on the value when compared to the unencumbered value given that rent may be payable on the leaseback transaction, which would be an income stream for the lessor, as part of the sale and leaseback arrangement.