Example 3: Unit Trust Scheme Distribution and SDLT Implications Explained

SDLT section 75A and property distributions from unit trusts

HMRC’s example shows that even if a property is distributed from a unit trust for no consideration and a later small intra-group land transfer qualifies for group relief, SDLT can still arise under section 75A. This is because the anti-avoidance rule may replace the actual steps with a notional direct transfer from the trust to the company that ends up with the whole property.

• Section 75A can apply where a series of transactions produces less SDLT than a direct transfer of the property would have done.
• In HMRC’s example, the trust distributed the property to two group companies, and one then bought the other’s 1% share.
• The actual distribution was not charged to SDLT because no consideration was given, and the later 1% transfer was relieved by group relief.
• HMRC says section 75A can still create a notional transaction under which the final owner is treated as acquiring the whole property from the unit trust.
• The chargeable consideration for that notional transaction is the largest amount paid in the scheme transactions, here the price paid for the 1% interest, not the full property value.
• Group relief does not carry over automatically to the notional transaction, because the deemed transfer is from the trust rather than from the fellow group company.

Scroll down for the full analysis.

SDLT section 75A and unit trust property distributions: why a tax charge can still arise

This page explains an HMRC example about a property held in a unit trust scheme, where the property is first distributed to unitholders and then one unitholder buys out the other’s small share. On the face of the actual land transfers, little or no SDLT may appear payable. But HMRC’s view is that section 75A can still impose SDLT on a notional transaction. The example matters because it shows how anti-avoidance rules can apply even where the steps are legally effective and the direct land transactions attract little tax.

What this rule is about

Section 75A FA 2003 is an anti-avoidance rule for SDLT. It can apply where a person ends up with a property interest, another person has disposed of that interest, and a series of transactions has produced less SDLT than would have been due if the property had been transferred directly.

The HMRC example deals with a unit trust scheme holding a single high-value property. The units in the trust are moved within a group. The property is then distributed to the new unitholders for no consideration. One of those unitholders then transfers its small share in the property to the other group company.

The key issue is this: even if the actual land transactions produce no SDLT charge, or relief removes the charge, section 75A may reconstruct the arrangement as a single notional land transaction and charge SDLT on that basis.

What the official source says

HMRC’s example starts with a unit trust scheme holding one debt-free property worth £20 million. Two foreign companies hold the units, one with 99% and the other with 1%. They are in the same SDLT group.

Those unit holdings are sold to two UK companies in the same group. After that, the trust distributes the property to the new unitholders in proportion to their unit holdings, so one company receives a 99% interest in the land and the other receives a 1% interest. The trust is then liquidated. Immediately afterwards, the company holding the 99% interest buys the remaining 1% interest from the other company for an amount equal to 1% of the property’s value.

HMRC says the SDLT position on the actual land transactions is as follows:

• The distribution of the property by the unit trust is for no consideration, so there is no SDLT charge on that distribution.
• The later transfer of the 1% land interest is potentially chargeable, but group relief is claimed, so no SDLT is payable on that actual transfer.

HMRC then applies section 75A:

• The earlier unit transactions are ignored for section 75A purposes because section 75C(1) excludes them.
• The relevant scheme transactions are the distribution of the property to the two companies and the later transfer of the 1% interest.
• For section 75A, the vendor or transferor for the notional transaction, V, is the unit trust scheme, because it originally held the property interest and disposed of it.
• The purchaser, P, is the company that ends up with the whole property.
• The notional transaction is treated as if P acquired the whole property interest from V.

HMRC also says that the notional transaction can retain the character of the actual transfer. Here, that means it retains the character of a distribution. Because of that, section 54 can apply so that there is no market value substitution charge simply because the transfer was otherwise than for consideration.

However, that does not eliminate SDLT altogether. Under section 75A(5), the chargeable consideration for the notional transaction is the largest amount given by any person for the scheme transactions. In HMRC’s example, that is the amount paid by the 99% holder to acquire the remaining 1% land interest.

HMRC also says group relief cannot be claimed for the notional transaction. The reason is that the notional transaction is not between the two group companies that made the actual 1% transfer. Instead, it is between the unit trust scheme as V and the company ending up with the whole property as P. Since the trust is not a company for group relief purposes, section 101 FA 2003 prevents group relief from applying.

HMRC concludes that the section 75A comparison test is met because more SDLT is payable on the notional transaction than on the actual land transactions. The amount charged is based on the price paid for the 1% interest.

What this means in practice

The practical point is that a nil-consideration distribution from a unit trust, followed by an intra-group clean-up transfer of a minority land share, is not looked at only step by step. HMRC may instead ask what the overall result was and whether section 75A should impose SDLT on a reconstructed transaction.

In this example, the company that ends up with 100% of the property does not escape SDLT merely because:

• the initial property distribution was for no consideration, and
• the only paid-for land transfer was between group companies and qualified for group relief.

HMRC’s approach is to identify the overall land outcome and then ask whether section 75A replaces the actual sequence with a notional direct acquisition.

The striking feature of the example is that the SDLT charge under section 75A is not based on the full value of the property. HMRC says the notional transaction keeps the character of a distribution, so the market value rule is not brought in through that route. Instead, the chargeable consideration is the largest amount given in the scheme transactions, namely the payment for the 1% interest.

That means the anti-avoidance charge is narrower than a full market value charge, but it is still a real charge and group relief is not available against it.

How to analyse it

If you are assessing a similar arrangement, the useful questions are:

• Who originally held the property interest?
• Who ends up with the whole or substantially the whole property interest?
• Which steps are land transactions, and which are transactions in units or other rights?
• Are any steps ignored for section 75A purposes, such as unit transactions excluded by section 75C(1)?
• What are the “scheme transactions” that section 75A will actually look at?
• What SDLT is payable on the actual land transactions after taking account of any reliefs?
• If the property had instead moved directly from the original holder to the final acquirer, would more SDLT have been due?
• What is the largest amount of consideration given by anyone for any of the scheme transactions?
• Does the notional transaction retain a legal character, such as a distribution, that affects how SDLT rules apply?
• Would any relief claimed on an actual transaction still be available on the notional transaction, given the identities of V and P?

This last point is especially important. Reliefs that work on the actual steps do not automatically carry across to the section 75A notional transaction. You must test the relief against the notional transfer that section 75A creates, not against the real-world transfer on which the relief was originally claimed.

Example

Illustration based on HMRC’s example.

A unit trust owns a property worth £20 million. Two group companies acquire the units so that one company is entitled to 99% and the other to 1%. The trust then distributes the property to them in those shares for no consideration. That distribution, looked at by itself, does not give rise to SDLT because nothing is paid for it.

The 99% company then buys the 1% land interest from the other company for £200,000. On that actual transfer, group relief is claimed, so no SDLT is paid.

HMRC says section 75A can still apply. The arrangement is treated as a notional acquisition by the 99% company of the whole property from the trust. The chargeable consideration is not the full £20 million. Instead, it is the largest amount given in the relevant scheme transactions, here £200,000. Group relief is not available on that notional transaction because the deemed transfer is from the trust, not from the fellow group company.

Why this can be difficult in practice

Several parts of the analysis are technical and fact-sensitive.

First, section 75A does not simply tax every multi-step arrangement. You have to identify the correct scheme transactions and apply the statutory comparison test. In some cases, it may not be obvious which steps are included and which are ignored.

Second, the example depends on the notional transaction retaining the character of a distribution, so that section 54 can disapply a market value charge. That is an important point, because without it the SDLT result could be very different. Whether a notional transaction retains a particular legal character can be a subtle issue.

Third, relief analysis under section 75A is easy to get wrong. A relief may be available on an actual transaction but unavailable on the notional transaction because the deemed parties are different. HMRC’s example shows this clearly with group relief.

Fourth, the example involves a unit trust scheme. The result may depend heavily on the legal nature of the vehicle holding the property and on the specific statutory rules that apply to it. It would be unsafe to assume that the same reasoning applies in exactly the same way to all collective investment or trust structures.

Finally, the example is HMRC manual guidance. It is helpful evidence of HMRC’s interpretation, but the legislation remains the legal starting point. In any real case, the statutory wording and the precise facts must control the outcome.

Key takeaways

• A nil-consideration property distribution from a unit trust can still fall within a wider section 75A analysis.
• Group relief on an actual intra-group land transfer does not mean group relief will also be available on the section 75A notional transaction.
• In HMRC’s example, SDLT under section 75A is charged by reference to the amount paid for the 1% land interest, because that is the largest amount given in the relevant scheme transactions.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example 3: Unit Trust Scheme Distribution and SDLT Implications Explained

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