Stamp duty holiday loophole or a red herring?

One interesting feature of Monday’s Parliamentary debate on stamp duty was at the end, when Jesse Norman, the financial secretary to the Treasury, implied that we should not be so fixated with the Completion date when thinking about the SDLT holiday “cliff edge”. He reminded MPs that the concept of  “substantial performance” of a property contract is a “legally recognised” one in stamp duty legislation.

Jesse Norman

What was the minister referring to? Was he right to introduce a glimmer of hope that there could be a ‘loophole’ that would allow a residential customer to benefit from the SDLT holiday, even if they have not completed their transaction by the 31 March 2021?

The answer is yes and no! Yes, in that there is indeed a legal concept of “substantial performance” of a property contract in stamp duty legislation, but no in that this concept really has very little bearing on residential property transactions.

The background is that to comply with SDLT rules it is important to know the “effective date” of the property transaction, since this is when the time begins to run for payment to HMRC. As a general rule the “effective date” of a property transaction is the date of completion. However, when the contract is substantially performed before completion, the effective date is the date of “substantial performance” (see section 44 Finance Act 2003).

But before estate agents and conveyancers get too excited, thinking that there might be a way of backdating the effective date of the property transaction, it is important to know what “substantial performance” means.  According to section 44(5) of the Finance Act 2003 a contract is substantially performed when:

  • The purchaser or a connected person takes possession of the whole or substantially the whole of the land , or
  • The whole or a substantial amount of the consideration is paid or provided.

So while this provision does have some application to commercial property  (eg where a development agreement for a lease allows the tenant access for fitting out), and there may be some residential cases where a purchaser gets early access, the truth is that there are very few residential cases where “substantial performance” of the property contract could be made out.

David Jabbari

An imaginative conveyancer might consider such things as an early licence to occupy or paying over purchase monies early but neither HMRC, nor the reality of the completion process, is likely to permit this! Of course, if HMRC were minded to adopt a more flexible view on what “takes possession” means, this would be an easy way for the government to introduce some flexibility. This would however require a substantial departure from HMRC’s guidance which refers to obtaining the “keys to the door” since, as we all know, release of keys only happens on completion.

In conclusion then it is pretty perplexing why Jesse Norman decided to make this point in the debate. Let’s hope there is something a bit more tangible in the Budget on 3rd March!


David Jabbari is a solicitor and CEO of Muve . 


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One Comment

  1. Rob Hailstone

    In my opinion, Jesse Norman has no idea what the phrase “substantial performance” really means in practical terms, but thought it was some kind of bone to throw at the end of the debate.

    There will be very few transactions that will be able to take advantage of that “loophole.”


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