HMRC SDLT: SDLTM23082 – Reliefs: Group, reconstruction or acquisition relief
Principles and Concepts of SDLTM23082 – Reliefs
This section of the HMRC internal manual discusses the principles and concepts related to group, reconstruction, or acquisition relief. It provides guidance on specific tax reliefs available under certain conditions.
- Explains the eligibility criteria for group relief.
- Details the conditions for reconstruction relief.
- Outlines the process for claiming acquisition relief.
- Includes examples to illustrate application of the reliefs.
- Offers guidance on compliance with HMRC regulations.
Read the original guidance here:
HMRC SDLT: SDLTM23082 – Reliefs: Group, reconstruction or acquisition relief
Title: SDLTM23082 – Reliefs: Group, Reconstruction or Acquisition Relief
This article explains the rules around group relief in relation to stamp duty land tax, specifically focusing on situations where the relief may be affected by changes in control of the purchaser. The guidance covers what constitutes a change in control, when that change affects the holder of group relief, and details about partnerships and share transactions.
Understanding Change in Control
According to paragraph 4AZ (5) of Schedule 7, a change in control of a purchaser can happen in any of the following scenarios:
- a) A person who has control of the purchaser (either alone or with others) stops having that control.
- b) A person gains control of the purchaser (either alone or with others).
- c) The purchaser is dissolved or wound up.
Furthermore, paragraph 4ZA (8) of Schedule 7 states that the term ‘control’ is defined according to section 416 of the Taxes Act 1988. This definition includes:
- Control over company affairs.
- Control through voting power.
- Control through ownership share capital.
- Control over the company’s income.
- Control over the company’s assets.
For more details on the concept of control, you can refer to CTM60200+.
When is There No Change in Control?
There are specific instances when HMRC does not consider there to be a change in control, even if the definition suggests otherwise. The following circumstances outline this guidance:
Appointment of a Liquidator
If a liquidator is appointed, the company loses its rights over its assets, including any shares it owns in other companies, as established in the case of Ayerst v C&K Construction Ltd (50 TC651). Without specific regulations, the winding up of a holding company may disrupt the entire corporate group, causing issues for companies that are genuinely restructuring.
To prevent such complications, HMRC will not interpret the appointment of a liquidator as a change in control for the purposes of sub-paragraph (5) (b), provided it is part of a broader reconstruction plan that can demonstrate a legitimate need for relief. Additionally, as long as the overall economic ownership of the relevant assets remains within the original group, this criterion will not indicate a change in control.
Insertion of an Intermediate Holding Company
According to sub-paragraph (6), there will not be a change in control if a new holding company is placed between the original ultimate parent company and its shareholders or between the purchaser and the parent company, provided that there is no shift in the overall economic ownership of the group. HMRC focusses on the ultimate shareholding when determining control, meaning that rearranging ownership within the group may not risk claiming group relief.
Impact of Loan Creditors
Sub-paragraph (7) clarifies a point regarding loan creditors and their impact on control. If a loan creditor causes a change in control for the purchaser, group relief will not be lost as long as the individuals who controlled the purchaser before the change continue to do so. This provision is key for groups seeking to manage their financing realistically without losing relief because of new lenders entering the picture.
Share Transactions in Quoted Companies
During discussions in Parliament, the Economic Secretary to the Treasury addressed worries that HMRC might too broadly interpret a change in control. Concerns were raised about whether a change involving even one shareholder in a quoted company could be viewed as a change in control.
To clarify, the Secretary stated that if control of a publicly traded company changes due to the ordinary buying and selling of shares in the market, there will not be any recovery of the relief. This position ensures that routine transactions among unrelated minority shareholders on the stock exchange will not trigger a loss of group relief.
Partnerships and Private Equity Considerations
When it comes to partnerships, particular attention is paid to the majority shareholder of the purchaser. If a partner leaves or a new partner joins the partnership—regardless of how small their interest in the partnership is—a withdrawal of group relief will occur. This situation arises from the wording in section 416(6), which stipulates that each individual partner is viewed as being capable of controlling the group for the purposes of Section 416.
However, under the current legislation regarding group relief, any rights or powers held by partners themselves will not be attributed among one another, thus isolating their interests from the control situation. Changes in the identity of general partners will also be ignored when determining whether a change in control has taken place.
Key Principles to Remember
The following principles are essential to understand group relief and change of control:
- The definition of control is wide-ranging, encompassing various aspects of company management, financial interests, and ownership.
- Not all changes, particularly in restructuring or due to the appointment of a liquidator, will affect group relief.
- Changes involving partnerships are closely monitored as they can lead to significant impacts on the group relief status.
- Market transactions in publicly quoted companies are generally regarded as non-impactful for control definitions in terms of group relief.
In the realm of tax law, understanding these distinctions helps companies make informed decisions when restructuring or considering changes in their shareholding structures. For businesses involved in mergers, acquisitions, or reorganisations, clarifying the implications of control changes is vital for accessing available reliefs without complications.