HMRC SDLT: SDLTM34420 – Application of exemptions and reliefs: Group Relief

Application of Exemptions and Reliefs: Group Relief

This section of the HMRC internal manual provides guidance on the application of exemptions and reliefs, specifically focusing on Group Relief. It outlines the principles and concepts involved in claiming Group Relief within the UK tax system.

  • Explains the eligibility criteria for Group Relief.
  • Details the process for claiming relief between group companies.
  • Describes the limitations and conditions associated with Group Relief.
  • Provides examples to illustrate the application of these rules.

Guidance on SDLT and Group Relief

This article explains how to understand the process of applying exemptions and reliefs relating to Stamp Duty Land Tax (SDLT), particularly in the context of group ownership structures. The focus will be on a case where a chargeable interest is transferred from a partnership to a limited company.

Understanding the Transfer

The scenario involves a partnership, referred to as SP/Sc LP, that is transferring a chargeable interest to a company, named B Ltd. To grasp how SDLT applies, we must look into the specific arrangements, particularly in relation to how ownership is determined.

Step-by-Step Process

To determine SDLT liability, we need to follow several key steps based on the ownership structure.

Step One: Identify Relevant Owners

  • B Ltd is recognised as a relevant owner. This is because, right after the transfer, it gains entitlement to a portion of the chargeable interest. Additionally, it was a partner immediately before the transaction took place.

Step Two: Identify Corresponding Partners

  • B Ltd serves as its own corresponding partner. This means that B Ltd was not only a partner before the transaction, but also the relevant owner afterward.
  • C Ltd cannot be a corresponding partner in this context, as it is a company and not an individual.

Step Three: Assess Ownership After the Transaction

  • B Ltd holds 100% of the chargeable interest immediately after the transaction.
  • Since there is only one corresponding partner in this case (B Ltd), the entire share is attributed solely to B Ltd.

Step Four: Determine Lower Proportion

  • The lower proportion attributed to each corresponding partner is determined by comparing the share of the chargeable interest to the partnership share held by the partner.
  • In this situation:
    • 100% is the proportion of the chargeable interest attributable to B Ltd.
    • 50% is the partnership share that B Ltd holds.
    • The lower of these two figures is 50%.

Step Five: Calculate the Sum of Lower Proportions

  • As there is only one lower proportion identified, there are no additional figures to combine.
    Therefore, the total of the lower proportions in this case is 50.

Understanding Chargeable Consideration

To calculate the chargeable consideration for SDLT, we apply the formula:

Chargeable consideration = MV x (100 – SLP) %

Where MV refers to the market value of the property, and SLP is the stamp duty land tax percentage. In this case, we can calculate:

  • MV x 50% = 50%

As a result, the chargeable consideration is based on 50% of the market value of the property in question.

Examining the Nature of the Transfer

By applying paragraph 2(1) of the legislation, we treat the transaction as a transfer made by B Ltd and C Ltd to B Ltd. This indicates that C Ltd is transferring its 50% interest in the property to B Ltd.

Role of Group Companies and Reliefs

In this transaction, both B Ltd and C Ltd are 100% owned subsidiaries of another company, referred to as A Ltd. Because of this group structure, we need to see if the conditions set out in Schedule 7, paragraph 2 are met. If these requirements are satisfied, relief provisions under Schedule 15 will apply, which can reduce or eliminate the SDLT charge identified earlier.

Key Concepts Related to SDLT and Group Relief

It is important to understand certain concepts that impact the SDLT calculation and the relief process:

  • Chargeable Interest: This refers to property interests that are subject to Stamp Duty Land Tax.
  • Relevant Owner: An entity that, following a transaction, becomes entitled to a portion of the chargeable interest.
  • Corresponding Partner: A partner that corresponds to a relevant owner based on ownership before the transaction.
  • Market Value (MV): The price that the property would sell for on the open market.
  • Reliefs and Exemptions: Special rules that allow certain transactions to be exempted or charged at a reduced rate of SDLT.

Further Considerations

When dealing with SDLT, ensure the following points are kept in mind:

  • Verify all ownership details before starting the SDLT calculation process.
  • Understand the implications of group ownership for SDLT reliefs.
  • Consult with relevant tax professionals whenever there are uncertainties or complex situations regarding property transfers.

This guidance helps clarify how to navigate SDLT liabilities and exemptions when dealing with partnerships and group-owned companies.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM34420 – Application of exemptions and reliefs: Group Relief

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