Group Tax Relief Definitions and Anti-Avoidance Rules Explained in Detail
SDLT Group Relief: Companies, 75% Subsidiaries and Arrangements
SDLT group relief only applies if the parties are qualifying companies or other bodies corporate, meet the strict statutory 75% subsidiary test, and are not caught by separate anti-avoidance rules on “arrangements”. It is not enough that businesses are commercially connected or that one company broadly controls another.
- A “company” for these rules can include any body corporate, but not every group entity will qualify, especially some partnerships, trusts or unusual overseas vehicles.
- To be a 75% subsidiary, the parent must meet all three tests: beneficial ownership of at least 75% of ordinary share capital, at least 75% entitlement to distributable profits, and at least 75% entitlement to assets on a winding up.
- The 75% relationship can be direct or indirect, including where both companies are 75% subsidiaries of the same parent, but the full statutory test must still be satisfied throughout the chain.
- “Arrangements” is interpreted widely and can include any scheme, plan or understanding, even if it is informal or not legally enforceable.
- The group test and the anti-avoidance test are separate hurdles, so relief can fail even if only one of them is not met.
Scroll down for the full analysis.
Read the original guidance here:
Group Tax Relief Definitions and Anti-Avoidance Rules Explained in Detail
SDLT group relief: what counts as a company, a 75% subsidiary, and “arrangements”
This page explains key definitions used in SDLT group relief. These definitions matter because group relief is only available if the companies involved meet the statutory group tests, and relief can be blocked if there are disqualifying arrangements in place. The source material is brief and technical. The practical question is whether the parties are genuinely within the same qualifying corporate group, and whether anything has been planned that takes the transaction outside the relief.
What this rule is about
Group relief is intended to remove SDLT charges on certain land transfers within a corporate group. But the relief is not available simply because businesses are commercially connected or because one entity is loosely controlled by another. The legislation uses specific tests.
The source material deals with three linked issues:
- whether the entities involved are companies or other bodies corporate capable of qualifying for relief;
- whether they satisfy the statutory 75% subsidiary relationship; and
- whether anti-avoidance rules apply because there are “arrangements” in place.
These are threshold issues. If they are not satisfied, the claim fails even before you reach other parts of the group relief rules.
What the official source says
The official material says that relief is extended to any “body corporate” through the definition of “company” in section 100(1) of Finance Act 2003. To decide whether a particular entity is a body corporate, HMRC says it will follow the stamp duty guidance referred to in its manuals.
It then explains the meaning of “subsidiary” for group relief purposes. Under paragraph 1(2)(b) of Schedule 7 to Finance Act 2003, the companies claiming relief must be 75% subsidiaries of each other, or both must be 75% subsidiaries of a third company.
Paragraph 1(3) sets out the test. For company A to be a 75% subsidiary of company B, company B must satisfy all of the following:
- it must be the beneficial owner of at least 75% of A’s ordinary share capital;
- it must be beneficially entitled to at least 75% of the profits available for distribution to equity holders; and
- it must be entitled to at least 75% of the assets available for distribution to equity holders on a winding up.
The source also says that ownership can be direct or indirect through another company or group of companies. It refers to older corporation tax rules for working out the amount of ordinary share capital, and to corporation tax legislation for the meaning of “equity holder”.
Separately, paragraph 2 of Schedule 7 contains anti-avoidance rules. These can deny relief where certain “arrangements” exist. The source says that “arrangements” is defined widely to include any scheme, arrangement or understanding, whether or not legally enforceable. HMRC says that deciding whether arrangements exist depends on all the facts and surrounding circumstances.
The source also makes an important structural point: the paragraph 1 tests and the paragraph 2 tests apply independently. So a claim can still fail under paragraph 1 even if there are no disqualifying arrangements under paragraph 2, and vice versa.
What this means in practice
The practical effect is that group relief depends on legal and economic ownership tests, not just on broad commercial control.
First, check that each party is a qualifying entity. The legislation uses “company”, but the definition is wide enough to include any body corporate. That does not mean every entity in a group will qualify. Partnerships, trusts and some non-corporate vehicles may fall outside the definition. If the entity is unusual, overseas, or not a standard UK company, the question whether it is a body corporate may need careful analysis.
Second, check the 75% relationship in full. It is not enough for the parent to hold 75% of the ordinary shares if it does not also have the required entitlement to profits and assets on a winding up. All three limbs matter.
Third, do not treat indirect ownership as a problem in itself. The legislation allows ownership through other companies in the group. But the indirect chain still has to produce the required 75% result under the statutory rules.
Fourth, remember that anti-avoidance is a separate question. Even if the companies are technically within the same qualifying group, relief may still be denied if there is a scheme, understanding or plan of the kind covered by paragraph 2.
The wide definition of “arrangements” matters in practice. A formal contract is not required. An informal understanding, a planned sequence of steps, or a pre-transaction expectation may be enough if the facts support that conclusion.
How to analyse it
A sensible way to approach the issue is to work through the following questions in order.
Are both parties companies or bodies corporate?
If an entity is not an ordinary UK incorporated company, identify its legal nature first. The question is whether it is a body corporate for these purposes, not simply whether it is treated as a taxable person elsewhere.
What is the ownership structure at the effective date of the transaction?
Map the chain of ownership. Identify whether the companies are 75% subsidiaries of each other, or whether both are 75% subsidiaries of a common parent.
Are all three 75% tests met?
Check:
- beneficial ownership of at least 75% of ordinary share capital;
- beneficial entitlement to at least 75% of distributable profits for equity holders; and
- entitlement to at least 75% of assets on a winding up.
A failure on any one of these points is enough to break the test.
Is the ownership direct or indirect?
Indirect ownership is allowed, but you still need to trace the interests through the group and apply the statutory rules carefully.
Are there any arrangements that could disqualify the claim?
Look beyond signed documents. Consider whether there was any scheme, plan, understanding or expectation affecting the transaction or the group relationship. HMRC says this is a factual question based on all the circumstances.
Have you treated paragraph 1 and paragraph 2 as separate hurdles?
A common mistake is to focus only on anti-avoidance and assume the structural group test is met, or to prove the group relationship and assume that ends the matter. The legislation requires both stages to be considered independently.
Example
Illustration: Parent Ltd owns 80% of the ordinary share capital in Sub A Ltd and 80% of the ordinary share capital in Sub B Ltd. Parent Ltd is also entitled to 80% of the profits available for distribution to equity holders in each company and 80% of the assets available on a winding up. On those facts, Sub A Ltd and Sub B Ltd would meet the source material’s description of being 75% subsidiaries of a third company.
But that does not end the analysis. If, for example, there was an existing plan or understanding connected with the transfer that falls within paragraph 2, relief could still be denied. Equally, if Parent Ltd held 80% of the ordinary shares but had rights to less than 75% of profits or winding-up assets, the paragraph 1 test would not be satisfied even though the shareholding looked high enough at first glance.
Why this can be difficult in practice
The difficult part is often not the headline 75% figure, but the detail behind it.
One difficulty is that the test is not limited to share capital. Different rights can attach to shares for profits and capital. A structure can therefore appear to be within group relief based on voting or share percentages, but fail when the profit and winding-up entitlements are examined properly.
Another difficulty is identifying beneficial ownership. The source material refers to beneficial ownership and beneficial entitlement, which means the analysis is concerned with who truly enjoys the relevant rights, not just whose name appears on a register.
A further difficulty is the breadth of “arrangements”. Because the definition includes understandings that are not legally enforceable, the issue can become highly fact-sensitive. Internal communications, transaction sequencing, board intentions and connected steps may all matter. The source does not give a mechanical test. It says HMRC will look at all the facts and surrounding circumstances.
There can also be complexity where the entities are non-UK or have unfamiliar legal forms. In those cases, whether the entity is a body corporate may require comparison between its legal characteristics and the concept used in the legislation and HMRC’s wider stamp tax guidance.
Key takeaways
- For SDLT group relief, the parties must be qualifying companies or bodies corporate and must satisfy the statutory 75% subsidiary test.
- The 75% test has three limbs: ordinary share capital, distributable profits, and winding-up assets. It is not enough to look only at share ownership.
- Anti-avoidance under paragraph 2 is a separate hurdle, and “arrangements” is interpreted widely to include informal understandings as well as formal agreements.
This page was last updated on 24 March 2026
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