Read the original guidance here:
HMRC SDLT: Guide on Group Relief for Transfer of Chargeable Interest to B Ltd

Understanding SDLT Exemptions and Reliefs: Group Relief

Introduction to Group Relief

Group relief refers to the relief from Stamp Duty Land Tax (SDLT) that applies in certain situations involving connected companies or partnerships. It can help reduce the tax burden when property interests are transferred between entities that are part of the same group.

Scenario Overview

In this example, we have a transfer of a chargeable interest from a partnership, specifically from a partnership known as SP/Sc LP, to a company named B Ltd. For more information about the partnership structure, you can refer to SDLTM34410.

Understanding the SDLT Liability

To determine if SDLT is payable in this situation, we take into consideration the specifics laid out in paragraph 2 of the SDLT regulations. This involves the assessments in paragraph 18 and paragraph 20, which can be found in SDLTM33750.

Steps to Identify SDLT Liability

To establish whether there is a liability for SDLT, follow these five key steps:

Step One: Identify the Relevant Owner(s)

– In our case, B Ltd qualifies as a relevant owner.
– This is because, right after the transaction takes place, B Ltd holds a share of the chargeable interest and was also a partner in the partnership before the transaction.

Step Two: Identify Corresponding Partners

– Next, we need to identify the corresponding partner for B Ltd.
– Here, B Ltd is its own corresponding partner as it was a partner before the transaction and is now identified as the relevant owner.
– It is important to note that C Ltd cannot be a corresponding partner because it is not an individual; rather, it is a corporate entity.

Step Three: Assess Ownership Percentage

– After the transaction, B Ltd holds 100% of the chargeable interest.
– Since B Ltd is the only corresponding partner, this entire portion is allocated to B Ltd.

Step Four: Determine the Lower Proportion

– For each corresponding partner, we assess their share of the chargeable interest.
– Here, we compare two figures:
– 100% (which represents the chargeable interest attributable to B Ltd)
– 50% (indicating the partnership share that B Ltd is entitled to).
– The lower figure here is 50%.

Step Five: Calculate the Total Lower Proportions

– Since there’s only one corresponding partner (B Ltd) and only one lower proportion (50%), we do not need to add anything together.
– The total sum of the lower proportions in this case is 50.

Calculating Chargeable Consideration

To establish the chargeable consideration, we use the following formula:
– Chargeable consideration = Market Value (MV) x (100 – Special Rate Percentage)/100.

So, in this instance:
– MV x 50% = 50%.

This means that the chargeable consideration is 50% of the market value.

Transfer Analysis

With the details from paragraph 2(1), we look through the partnership to see the relevant partners. Essentially, this transaction is viewed as a transfer from both B Ltd and C Ltd to B Ltd itself. More specifically:
– C Ltd transfers its 50% interest in the property directly to B Ltd.

Considerations for Group Companies

Both B Ltd and C Ltd are subsidiaries of another company, A Ltd. Under the provisions outlined in Schedule 7, this could allow for further relief from the SDLT charge, provided all the requirements specified in Schedule 7 and paragraph 2 are satisfied.

Key Conditions for Group Relief

To benefit from group relief, certain conditions must be met, including:

– Companies must be group members, meaning one company controls the other or they are both controlled by a third company.
– Relevant legislation must be followed that relates to the specific transfers involved.
– Ensure compliance with all regulatory requirements when documenting the transfer to safeguard any reliefs claimed.

Practical Example of Group Relief

Let’s say we have two companies, B Ltd and C Ltd, both being fully owned by A Ltd.
– If C Ltd, which owns part of an interest in a property, transfers its share to B Ltd, only 50% of the market value may be used for SDLT calculations.

The potential to reduce the SDLT impact through these structured transfers is critical for businesses looking to manage their tax obligations effectively.

Final Notes

Understanding the mechanics of group relief is essential for companies involved in property transactions. By navigating these steps correctly, one can significantly impact the amount of SDLT owed. Adhering to guidelines ensures compliance and maximises available tax relief.

While this article provides practical insight into group relief concerning SDLT, it is recommended that companies seek professional advice to ensure all transactions are handled correctly and optimally.