Read the original guidance here:
HMRC SDLT: SDLTM23090F – Reliefs: Group, reconstruction or acquisition relief

Group, Reconstruction or Acquisition Relief – SDLTM23090F

Understanding Group Relief

Group relief allows companies that are part of the same group to transfer property without incurring Stamp Duty Land Tax (SDLT) charges. This is beneficial as it simplifies transactions within corporate structures.

Key Principles of Group Relief

– Group relief applies when companies are under common ownership.
– It allows for the transfer of property between group members without a tax charge.
– To qualify, companies must be members of the same group at the time of the transfer.

Example of Group Relief

Consider three companies:
– A Ltd is a parent company.
– B Ltd is entirely owned by A Ltd.
– C Ltd is also entirely owned by A Ltd.

In this case, A Ltd, B Ltd, and C Ltd form a group for the purposes of Stamp Duty Land Tax.

Now, B Ltd decides to transfer the freehold interest of a piece of land to C Ltd. The transaction occurs at no cost, meaning that C Ltd does not pay anything to B Ltd. The market value of this land is assessed at £1,000,000. Since both companies are part of the same group, C Ltd can claim group relief for this transfer, and no Stamp Duty Land Tax will apply.

Withdrawal of Group Relief

There are scenarios in which group relief might be withdrawn. However, it is important to note that group relief generally remains intact if the change of membership in the group is due to the actions of the vendor, rather than the purchaser.

Example of No Withdrawal of Group Relief

Using the previous example, suppose A Ltd sells the shares of B Ltd to an unrelated third party. This sale takes place within three years of the transfer of land from B Ltd to C Ltd. The market value of the freehold interest at the time of this share sale is now £1,750,000. As B Ltd is sold and leaves the group on 7 July 2006, concern might arise about the continuity of group relief.

However, in this situation, group relief is still not withdrawn. Here is why:
– The only reason C Ltd is no longer a member of the group with B Ltd is that B Ltd exited the group.
– The fact that the shares were sold does not affect the eligibility for group relief since C Ltd was originally part of the same group at the time of the property transfer.

Considerations for Other Group Transactions

It is vital to be aware that group relief can also apply in situations involving reconstruction or acquisition of companies.

Reconstructions and Acquisitions

– When companies undergo a reorganization (such as merging or splitting), group relief can still be claimed.
– If an acquiring company is part of a group, it can transfer property to another group member without incurring SDLT charges.

Example of Reconstruction Relief

Imagine A Ltd merges with D Ltd, forming a new entity named E Ltd. Before this merger, E Ltd acquires property from B Ltd. Since both B Ltd and D Ltd were part of the same group prior to the merger, E Ltd can claim group relief for the transfer of property. This means no SDLT will be owed on that property transfer.

Acquisition Relief Example

Let’s say that A Ltd decides to buy the shares in F Ltd, a newly established corporate entity. If F Ltd already owns a property, once A Ltd acquires F Ltd, it can transfer that property to another company within the group without any SDLT implication, benefiting from group relief.

Implications of Losing Group Status

When a company leaves a group, it is critical to determine any impact this has on previously obtained relief. If a member company leaves the group due to a sale or other disposition of shares, it does not automatically invalidate treaties concerning past transactions.

Example of Impact on Group Relief Following Sale

If C Ltd sold its shares in B Ltd to a buyer who is not part of A Ltd, C Ltd would no longer be treated as part of the group. However, purchases made by C Ltd while part of the group maintain their relief status because they took place before the sale.

Documentation Required

When claiming group relief, proper documentation is essential. Companies need to keep records that demonstrate:
– The relationship based on ownership between the companies involved.
– Evidence that the property transfer meets group relief criteria.

Documents to Gather

– Shareholder agreements showing ownership percentages.
– Company registration documents.
– Valuation reports indicating the market value of the property transferred at the time of the transaction.

Potential Scenarios Affecting Group Relief

Several factors can influence whether group relief is granted or withdrawn. Here are critical scenarios to watch for:

– Changes in Ownership: If the ownership structure changes, it may affect the eligibility for group relief.
– Property Value Changes: Changes in the value of properties involved in the transfer can affect tax assessments, even if group relief applies.

Example of Ownership Change Impacting Group Relief

If D Ltd sells its shares to a new entity G Ltd, it loses its group status with A Ltd. Any transactions between A Ltd and D Ltd occurring after this would no longer benefit from group relief.

Important Considerations for Businesses

Businesses planning transfers of properties between group companies should consider the following:

– Assess the group structure regularly to maintain records of which companies are eligible for group relief.
– Monitor any changes in ownership closely, particularly involving member companies.
– Understand the timelines involved when claiming group relief, especially during share sales or transitions.

Resources for Further Guidance

For detailed information and further guidance, businesses can visit the relevant pages on the HMRC website. Make sure to refer to the specific SDLT guidance for group relief, as this is essential for compliance and to maximize tax benefits associated with property transfers.

You can access the detailed guidance on SDLT and group relief at SDLTM23090F – Reliefs: Group, reconstruction or acquisition relief.