That all changed when stamp duty was replaced by the new stamp duty land tax (SDLT) in December 2003.
Exemption from SDLT depends upon meeting strict criteria. The charity "must intend to hold the subject matter of the transaction for qualifying charitable purposes". The whole of the property must be used for the charitable purposes of the purchaser or another charity. Alternatively, the whole of the profits derived from the property must be applied to the charitable purposes of the purchaser.
There is no partial exemption. Consequently, tax would be payable if part of the land were sold to a third party, even if that third party were a company closely associated with the purchaser.
Tax may also be payable by the charity if part of the land is rented out, unless the whole of the rental profit is applied to the charitable purposes of the purchaser. This aspect of the SDLT regime has severely limited the ability of charities to subsidise land acquisitions by entering into agreements with developers or by allocating part of their property to business uses.
Exemption can be withdrawn if, within three years of the original transaction, the purchaser ceases to be a charity or the premises are no longer used for fully charitable purposes. This three-year period can be extended where the disqualifying event is the result of an obligation that was in place before the charity bought the land.
Subsequent purchasers must also beware. If a charity's lease is assigned, the assignees could face a hefty tax bill, even if they have paid nothing for it. The assignment is treated as the grant of a new lease for a period equal to the remaining term and at a rent equal to the sums payable for the remainder of the actual lease.
For charities, and for anyone purchasing land from a charity, the SDLT regime is fraught with difficulties, so expert tax advice is more necessary than ever.
- Jane Kenyon, a solicitor at Clarks Legal LLP