Read the original guidance here:
HMRC SDLT: SDLTM23040 – Reliefs: Group, reconstruction or acquisition relief

Stamp Duty Land Tax Group Relief: Guidance on Availability

Overview

Stamp Duty Land Tax (SDLT) group relief allows companies within the same group to transfer properties without incurring this tax, provided certain conditions are met. However, recent updates to the law have imposed new restrictions on when this relief can be applied. This guidance explains these restrictions and provides examples of transactions where group relief should still be available.

New Restrictions on Group Relief

The Finance Act 2003, Schedule 7, Paragraph 2(4A) introduced important limitations on the availability of SDLT group relief. Here’s what you need to know:

– Group relief cannot be claimed if:
– The transaction is not carried out for genuine, business reasons.
– The transaction is mainly aimed at avoiding tax.

By ‘tax,’ we mean any of the following:
– Income tax
– Capital gains tax
– Corporation tax
– Stamp duty
– Stamp Duty Land Tax

If you are unsure whether a specific transaction violates these rules, you can seek advice from the HMRC Stamp Office.

Examples of Accepted Transactions

The following examples demonstrate situations where group relief is likely to remain valid, as outlined in the updated guidance. Remember, these cases are only general examples and should not be seen as strict rules. Additionally, these examples assume that the transactions do not form part of a larger tax-avoidance scheme.

• Transferring Property with Future Considerations: A company transfers property to a group company, considering that shares in that company might be sold more than three years later.
• Claw-Back Scenario: Property is transferred to a group company with the anticipation of selling shares within three years, knowing that it may lead to a loss of group relief, which allows any increase in property value to be sheltered from SDLT.
• Mixed Considerations: A property transfer is made with the possibility of either the share sale occurring within three years or far later.
• Ownership Prior to Sale: Transferring a property to a group company before selling shares in the original company ensures the property does not get included in the shares sold.
• Rental Income and Loss Matching: The transfer of property to facilitate matching commercially-generated rental income with losses from a property business.
• Chargeable Gains Matching: Similar to rental income, this transaction involves matching commercial chargeable gains with allowable losses.
• Historic Transfers to Non-Residents: Historical transfer of property to a non-resident group company is done with future value changes potentially falling outside UK tax on chargeable gains.
• Securitisation Transactions: Transactions that are part of typical commercial securitisation processes.
• Reversion Transfer to Prevent Wasting Assets: Transferring the freehold reversion of a property to a group lessee to combine freehold and lease, which prevents the lease from being treated under the wasting assets rules regarding corporation tax on chargeable gains.
• Interest Legitimacy: The transfer of property to ensure rental income can cover interest from borrowings made under standard commercial terms.
• Commercial Borrowing: Generally acceptable borrowing from commercial lenders or among group companies, as long as it resembles what related but unconnected companies would do.
• Transfer Before Tax Changes: Transfer of UK properties by non-resident owners to a UK group before changes in Capital Gains Tax in April 2019 and the UK’s exit from the EU.

Here, “transfer” refers to the transfer of freehold property or the assignment of a lease. It is important to note that leases might be scrutinised based on their specific circumstances.

Tax Avoidance Clauses

While the listed scenarios suggest that group relief remains available, it’s important to be aware that the presence of additional steps may point to a transaction being part of a scheme mainly aimed at avoiding tax. When determining whether a transaction has tax-avoidance purposes, various aspects, including relevant case law, need to be considered.

HMRC’s Position on Transactions

HMRC works to provide a clear message to taxpayers. They will outline specific scenarios that typically do not pose a risk of tax avoidance. The list of accepted transactions reflects this approach, but cases may still arise that lead HMRC to investigate further.

In any situation where tax avoidance schemes are suspected or declared, HMRC has a protocol for conducting inquiries. With this in mind, here are specific points about transactions that can clarify HMRC’s stance:

– A business may opt to acquire a company that owns property rather than directly acquiring the property itself.
– After buying the property-owning company, the new owner may then transfer the property from that company to another within the same group, which HMRC does not automatically consider to be tax avoidance.
– If the purchaser’s aim is to liquidate, wind down, or strike off the acquired company, this action alone is not seen by HMRC as indicative of tax avoidance.

Even if the acquisition of the property-owning company is tied to further intra-group transfers or subsequent company dissolutions, it does not automatically trigger tax avoidance scrutiny, as long as the transactions remain within the established parameters.

Understanding Commercial Context

It’s important to note that when examining transactions such as property transfers and company acquisitions, the analysis should be based on the context and intentions behind these actions. The business or transaction should stand on its own as a legitimate commercial activity that reflects the routine operations of unconnected companies.

Tax legislation provides flexibility, giving companies the option to organize their affairs in a way that may result in different tax implications. For instance, deciding to sell shares instead of the underlying property can present a less tax-intensive approach without crossing into avoidance behavior.

In summary, while certain transactions may yield tax advantages, they can still qualify for group relief if structured properly, free from the overarching purpose of tax avoidance. This is what HMRC seeks to clarify through their ongoing guidance.

Further Advice and Support

For individual cases that may involve intricate details or specific conditions, businesses can reach out for tailored advice. Engaging with the HMRC Stamp Office ensures you will gain the most accurate guidance regarding your unique situation.

Be aware that while the examples may provide clarity and guidance on SDLT group relief, they do not cover every potential scenario. Each transaction needs to be assessed based on its own facts and context, and taxpayers are encouraged to stay informed about how changes in tax law and HMRC’s interpretations may affect them.