SDLTM20335 - Freeports and Investment Zones relief – withdrawal of relief – partial disposal

Control periods continue for land that is subject to incomplete disposal (Paragraph 10), for example where a purchaser disposes of only 500 acres of a 1000-acre acquisition.

If the disposal is the grant of a lease by a purchaser out of a freehold interest, the control period will continue to run in respect of the retained interest provided the purchaser continues to use that interest in a qualifying manner (for example if they get rent for the land leased (para 3(1)(c)) and the tenant is not developing the site for residential use (para 3(2)). However, the purchaser’s relief is withdrawn where the retained interest ceases to be used in a qualifying manner during the control period starting when the freehold was acquired by the purchaser.

Example

A purchaser buys 500 acres of non-residential property inside a special tax site costing £5,000,000, intending to use all of it in a qualifying manner. The whole 500 acres counts as qualifying land and the entire £5,000,000 chargeable consideration counts for relief.

Relief is claimed on chargeable consideration of £5,000,000, reducing the tax charge from the £239,500 that would otherwise have been due.

30 months later, the purchaser grants a lease over a factory and car park sited on 100 of the acres originally purchased in return for a premium of £1,500,000 and an annual rent. The purchaser continues to qualify for relief because the rent means that the retained interest is being exploited in the course of a property rental business on a commercial basis and is being used in a qualifying manner.

Relief would have been clawed back, and a further return for £239,500 would have become due, had the purchaser ceased to use the retained land interest in a qualifying manner 30 months after purchase or had the lessee used the land for a non-qualifying purpose, for example residential development.