HMRC SDLT: SDLTM23100 – Reliefs: Group, reconstruction or acquisition relief
Principles and Concepts of SDLTM23100 Reliefs
This section of the HMRC internal manual provides guidance on reliefs related to group, reconstruction, or acquisition activities. It outlines the conditions and procedures for obtaining these reliefs, ensuring compliance with tax regulations.
- Explains group relief eligibility criteria.
- Details reconstruction relief processes.
- Describes acquisition relief requirements.
- Ensures adherence to HMRC tax laws.
- Provides examples and case studies for clarity.
Read the original guidance here:
HMRC SDLT: SDLTM23100 – Reliefs: Group, reconstruction or acquisition relief
Group Relief: Withdrawal and Recovery of Stamp Duty Land Tax (SDLT)
This article covers the rules governing the recovery of Stamp Duty Land Tax (SDLT) when group relief is withdrawn. When a group relief is taken back, it can lead to SDLT becoming payable, and we will explain who is responsible for paying this tax and how it can be recovered.
Understanding Group Relief Withdrawal
When group relief is withdrawn, SDLT becomes due. This can happen in different situations, such as after a period has passed or when an enquiry has been closed. Once the SDLT amount is established, the purchaser must pay it.
Recovering Unpaid SDLT
If the SDLT has not been paid within six months from the date it was due, the unpaid amount can be recovered from others. Here are the people from whom recovery can take place:
- The Vendor: This is the person or entity that sold the property.
- Higher Group Members: Any company that was part of the same group as the purchaser at any relevant time and is higher up in the group structure. For example, if B Ltd is a 75% subsidiary of A Ltd, then A Ltd is above B Ltd in the group structure.
- Controlling Directors: Any person who was a controlling director of the purchaser or of a company controlling the purchaser during any relevant time. This is defined as any time from when the transaction took effect until the purchaser is no longer in the same group as the vendor.
- The term ‘director’ is defined in tax regulations and includes any person meeting the criteria outlined in the Corporation Tax Act.
- Controlling director: A director who has control over the company according to the Corporation Tax Act.
Notification for Recovery
If recovery is necessary, it is essential to provide a formal notice to the individual or entity from whom the tax is being sought. Here are the requirements for the notice:
- The notice must demand that the unpaid SDLT amount be paid within 30 days of the notice being issued.
- The notice must be delivered within three years from the date that the tax amount was finalised.
- It should specify the exact amount of tax that needs to be paid.
- The notice will act like an official tax assessment, meaning it covers the recovery of the tax and any interest on it.
After Payment of Tax
When the individual or company that received the notice has paid the tax and any interest, they then have the right to reclaim that amount from the original purchaser.
Tax Deductions
It is important to note that any amounts paid in such situations cannot be deducted when calculating income, profits, or losses for tax purposes. This means that regardless of the circumstances, that amount will not reduce tax liabilities for the paying entity.
Key Considerations
The rules surrounding the recovery of SDLT can be complex, especially regarding who is liable for the payment and the processes required for recovery. Below are some key points to consider:
- Always track the six-month time limit for SDLT payment after group relief is withdrawn.
- Ensure that any recovery notice is clear and meets all requirements to be valid.
- Understand the roles of directors and members within the group structure when determining who may be liable for unpaid tax.
Practical Example
Let’s illustrate the process with a straightforward scenario. Consider the following:
Company A (the vendor) sells a property to Company B, which is part of a group of companies. Company C is a parent company, owning 75% of Company B. During the transaction, they claimed group relief for SDLT. However, circumstances change, and the relief is withdrawn.
As a result, Company B must now pay SDLT. If Company B does not pay the SDLT within six months, then Company A could potentially be liable to pay that amount or any holding company such as Company C due to their group relationship.
Actions Required When SDLT is Due
When SDLT becomes due, the following steps should be taken:
- Confirm the total amount of SDLT due.
- Make sure the payment is made within the six-month period to avoid additional recovery actions.
- If payment has not been made, prepare and serve a recovery notice to the appropriate party, clearly stating the amount owed and the timeframe for payment.
Implications for Directors
Controlling directors play an important role in the liability for SDLT. It is essential for companies that are part of a corporate group to understand that directors may be held responsible if SDLT remains unpaid. Therefore, it is in their best interest to ensure compliance with tax payments.
Understanding Group Structures
Group structures are vital to understanding SDLT liability. Here are some additional points regarding group influences:
- A group is usually defined based on ownership, where one company holds at least 75% of another company’s shares.
- Companies must maintain accurate records of their group relationships as these determine who can be held liable if SDLT is not paid.
Roles of Recovery Notices
Recovery notices serve a significant purpose in the SDLT process:
- They formally request payment from the liable party.
- They make it clear what amount is owed and the deadline for payment.
- The notice is treated as an official assessment, meaning it carries legal weight for tax recovery.
Final Remarks on SDLT Recovery
Understanding the rules and processes involved in SDLT, particularly in the context of group relief, is essential for both purchasers and vendors in property transactions. By being aware of potential liabilities and the recovery process, parties can avoid unexpected tax burdens and manage their financial obligations more effectively.