Broadly, full relief from stamp duty land tax (SDLT) is available for various land transactions within special tax sites in freeports and investment zones. This is part of the suite of tax reliefs that are designed to encourage investment in those areas.
The CIOT has been in discussions with HMRC around how the SDLT relief applies in situations where a developer buys land in a special tax site but does not fund or undertake the development itself. Instead, it enters into a forward funding agreement with development of the land taking place after the land is sold to the funder.
HMRC had recently confirmed in a letter to the CIOT that land that was effectively being held as stock of a developer, without any development taking place before being sold, would not amount to development – even where planning applications had been started and lease agreements had been entered into with tenants. HMRC says that ‘the relief conditions in [FA 2003] Schedule 6C of FA 2003 would not be met’ meaning this would be land held in a non-qualifying manner, noting that this scenario would appear to be similar to ‘land banking’ where a developer buys land as an investment and holds it for future use without plans to develop it. HMRC notes: ‘We do not see a practical way to distinguish between these two scenarios and do not agree that a developer could claim SDLT freeports relief in the circumstances you describe.’
In response, the CIOT suggests that a forward funding arrangement should be distinguished from land banking, on the basis that non-qualifying land is land held for resale without development. Under typical forward funding arrangements, development of the site is ‘integral to the sale to the investor’ and, in that sense, ‘there is no sale “without development” as envisaged by [the legislation]’. As the CIOT concludes: ‘The use of this funding structure is therefore distinguishable from the acquisition of a site that is deliberately left unused or put to some temporary use pending future development at an unspecified time subject to market conditions or other reasons. In fact, forward funding is a mechanism that allows the development to proceed in circumstances where it would not otherwise be viable using traditional funding. In that sense it is the opposite of land banking.’
This is something of a technical argument, but the CIOT also presents an important policy conundrum for HMRC and the government. Denying SDLT relief for forward funding development finance, compared to more traditional forms of financing where developers use their own funds, for example, ‘may have the unintended consequence of deterring investment and therefore undermine the overall policy aim of promoting long-term investment in underdeveloped tax sites.’
Broadly, full relief from stamp duty land tax (SDLT) is available for various land transactions within special tax sites in freeports and investment zones. This is part of the suite of tax reliefs that are designed to encourage investment in those areas.
The CIOT has been in discussions with HMRC around how the SDLT relief applies in situations where a developer buys land in a special tax site but does not fund or undertake the development itself. Instead, it enters into a forward funding agreement with development of the land taking place after the land is sold to the funder.
HMRC had recently confirmed in a letter to the CIOT that land that was effectively being held as stock of a developer, without any development taking place before being sold, would not amount to development – even where planning applications had been started and lease agreements had been entered into with tenants. HMRC says that ‘the relief conditions in [FA 2003] Schedule 6C of FA 2003 would not be met’ meaning this would be land held in a non-qualifying manner, noting that this scenario would appear to be similar to ‘land banking’ where a developer buys land as an investment and holds it for future use without plans to develop it. HMRC notes: ‘We do not see a practical way to distinguish between these two scenarios and do not agree that a developer could claim SDLT freeports relief in the circumstances you describe.’
In response, the CIOT suggests that a forward funding arrangement should be distinguished from land banking, on the basis that non-qualifying land is land held for resale without development. Under typical forward funding arrangements, development of the site is ‘integral to the sale to the investor’ and, in that sense, ‘there is no sale “without development” as envisaged by [the legislation]’. As the CIOT concludes: ‘The use of this funding structure is therefore distinguishable from the acquisition of a site that is deliberately left unused or put to some temporary use pending future development at an unspecified time subject to market conditions or other reasons. In fact, forward funding is a mechanism that allows the development to proceed in circumstances where it would not otherwise be viable using traditional funding. In that sense it is the opposite of land banking.’
This is something of a technical argument, but the CIOT also presents an important policy conundrum for HMRC and the government. Denying SDLT relief for forward funding development finance, compared to more traditional forms of financing where developers use their own funds, for example, ‘may have the unintended consequence of deterring investment and therefore undermine the overall policy aim of promoting long-term investment in underdeveloped tax sites.’
