Eliminating the stamp duty land tax (SDLT) costs when sukuk are issued

SDLT is potentially a major cost if one tries to issue an ijara sukuk using UK land.

The usual structure would involve a special purpose vehicle (SPV) owned by a charity, with the originator selling the land to the SPV which would pay for the land by issuing sukuk. The SPV would then lease the land back to the originator, and at the end of the sukuk the originator would repurchase the land from the SPV.

While sale and leaseback relief should apply to the lease from the SPV to the originator, there would however be an SDLT charge on the initial sale from the originator to the SPV, and again when the SPV sells the land back on expiry of the sukuk. SDLT operates at various rates, but on the values that would be involved if a sukuk is issued the rate would be 4% on each event, resulting in a total SDLT cost of 8%. Most potential issuers of sukuk would regard that level of cost as unacceptable. The comparator from conventional finance is the issue of a eurobond secured on the building, where no SDLT at all would arise.

HM Revenue & Customs (HMRC) have long been aware of the issue. Accordingly, on 26 June 2008 they issued a consultation document “Stamp duty land tax: Commercial sukuk” with responses due by 18 September.

The consultation document sets out HMRC’s proposals for eliminating the SDLT charge, while protecting the Exchequer against loss of SDLT if the land used to structure the sukuk does not eventually revert to the originator. The PricewaterhouseCoopers response has just been submitted and I have posted it here - Download pwc_response_to_sukuk_sdlt_26_6_08_consultation.pdf

Mohammed Amin