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HMRC SDLT: Group Tax Relief Definitions and Anti-Avoidance Rules Explained in Detail

Understanding Group Relief: Key Definitions

Relief for Bodies Corporate

Group relief can benefit any ‘body corporate’ under the definition of ‘company’ found in section 100(1) of the Finance Act 2003. HM Revenue & Customs (HMRC) uses specific guidelines to identify whether an entity qualifies as a body corporate. For more detailed information, refer to SDLTM23020.

What is a Subsidiary?

To qualify for group relief, companies must be at least 75% subsidiaries of one another or at least 75% subsidiaries of another company.

– 75% Subsidiary Definition:
– Company A is considered a 75% subsidiary of Company B if:
– Company B owns at least 75% of Company A’s ordinary shares.
– Company B is entitled to not less than 75% of the profits that are available for distribution to shareholders.
– On winding up, Company B would receive at least 75% of the assets of Company A that can be distributed to shareholders.

– Ownership:
– The term ‘ownership’ applies either directly or indirectly through another company or group of companies.
– The rules in section 838(5) to (10) of the Income and Corporation Taxes Act 1988 help determine the ownership amount of ordinary share capital.

– Defining Ordinary Share Capital:
– “Ordinary share capital” is defined in paragraph 1(5) of SDLTM23014. Additional guidance can be found in SDLTM23020.

– Equity Holders:
– The concept of “equity holder” refers to definitions found in Chapter 6 of Part 5 of the Corporation Tax Act 2010.

These definitions regarding subsidiaries also play a role in the arrangements test mentioned in paragraph 2(2)(b) of Schedule 7.

The Tests in Schedule 7

The tests found in paragraph 1 of Schedule 7 are required independently of the tests in paragraph 2. Claims will not be permitted if the conditions in these tests are not met.

Anti-Avoidance Rules in Paragraph 2 of Schedule 7

Paragraph 2 details anti-avoidance rules. These rules restrict the availability of group relief in certain scenarios where specific “arrangements” may be in place.

Understanding Arrangements

The term “arrangements” is broadly defined in paragraph 2(5). It includes any scheme, arrangement, or understanding, regardless of whether it is legally binding. This definition takes inspiration from section 76(6A)(b) of the Finance Act 1986.

– The historical context shows that “arrangements” were not specifically defined in previous stamp duty laws, including those in the Finance Acts of 1930 and 1967.

Under this updated definition, arrangements may cover unwritten schemes, arrangements, or understandings. To determine whether arrangements exist that could disqualify a claim, HMRC will consider all related facts and circumstances surrounding the specific claim.

In evaluating the presence of potential arrangements, HMRC will examine if any scheme, arrangement, or understanding exists that might affect the claim’s validity.

Key Considerations for Claims

When thinking about group relief claims, it is important to keep the following points in mind:

– Meeting Definition Criteria:
– Companies must accurately meet the criteria for what constitutes a subsidiary and understand what ownership means.

– Documentation and Understanding:
– It is necessary to document arrangements clearly and ensure that any understanding does not jeopardise group relief entitlement.

– Compliance with Regulations:
– Companies must stay compliant with the guidelines provided by HMRC, including the specific definitions and rules concerning ownership and subsidiaries.

– The Role of HMRC:
– HMRC takes an active role in assessing claims, ensuring that all stipulated requirements are met, and aligning with the regulations set forth in the Finance Acts.

Understanding these principles is vital for successful navigation of group relief and ensuring that businesses receive the appropriate tax benefits available to them under UK tax law.