Read the original guidance here:
HMRC SDLT: Guide on Group Relief and SDLT Liability in Partnership Transfers

Understanding SDLT Group Relief: A Practical Guide

This article explains the application of exemptions and reliefs concerning group relief, particularly in the context of Stamp Duty Land Tax (SDLT) when a chargeable interest is transferred between related parties, such as companies within the same group. We will use an example to illustrate the process step-by-step.

Key Concepts

• Chargeable Interest: This refers to any interest in land that is liable for SDLT when it is transferred.
• Relevant Owner: A person or entity that holds an interest in the land at the time of the transaction.
• Corresponding Partner: In partnerships, this is someone who is a partner in the same business and can claim reliefs based on relationships with relevant owners.
• Group Relief: This relief allows companies connected in a group to benefit from certain tax advantages when transferring chargeable interests.

Example Overview

In our scenario, we have a company called B Ltd that is transferring a chargeable interest to a partnership known as SP/Sc LP. For the specific details of this transaction, refer to SDLTM34410.

The transaction involves transferring interests to a partnership, meaning we will follow several specified steps to determine potential SDLT liabilities using paragraphs from the regulation: specifically, paragraphs 10, 12, and 27A—see SDLTM33550.

Step-by-Step Process

Step One: Identify the Relevant Owner(s)

First, we need to identify the relevant owner or owners in this transaction. B Ltd qualifies as a relevant owner because:

• Before the transaction, it holds a portion of the chargeable interest.
• After the transaction, it becomes a partner in the receiving partnership.

Step Two: Identify Corresponding Partners

Next, we identify the corresponding partners for each relevant owner. In this case:

• B Ltd is its own corresponding partner because it is both a relevant owner and a partner after the transfer.
• C Ltd is connected to B Ltd (as they are both part of the same group). So, according to paragraph 27A, C Ltd is treated as a corresponding partner as well.

Step Three: Determine Ownership Proportions

In this scenario, B Ltd owns 100% of the chargeable interest before the transfer. Since there are two corresponding partners (B Ltd and C Ltd), we will need to apportion this interest between them. A fair approach is to divide it equally:

• Both B Ltd and C Ltd will receive a 50% share of the chargeable interest.

Step Four: Calculate Lower Proportions

Now, we need to determine the lower proportion for each corresponding partner. Since both B Ltd and C Ltd were allocated a 50% share of the chargeable interest, we compare this with their partnership shares. In this case:

• The proportion of the chargeable interest for each partner is 50%.
• The partnership share attributed to each partner is also 50%.

This means the lower proportion for each partner remains 50%.

Step Five: Combine Lower Proportions

The next step is to sum the lower proportions calculated in the previous step:

• Add together the lower proportions: 50% (B Ltd) + 50% (C Ltd) = 100%.

Since the sum of the lower proportions equals 100%, there is no chargeable consideration for the transaction.

Application of Paragraph 27A and Group Relief

If paragraph 27A had not been applicable, C Ltd would not have been recognised as a corresponding partner. In that case, the partnership would have only counted 50% of the market value of the chargeable interest, resulting in a corresponding chargeable consideration being based on this lower percentage. Instead, because of paragraph 27A, the SDLT charge for the transfer remains as if C Ltd was indeed a corresponding partner.

• This means that the charge with respect to the transfer to the partnership is reduced to the amount that would have been calculated had C Ltd been considered a corresponding partner.
• The application of paragraph 27A effectively allows the partnership’s SDLT liability to be assessed at 100%, leading to a chargeable consideration that is 0% of the market value of the chargeable interest.

Claiming Group Relief

It is important that the partnership files a claim for group relief when submitting a land transaction return. This claim will specifically pertain to the reduction in charge (which is 50% in this illustration). However, keep in mind that this claim will be subject to standard conditions for group relief, with certain modifications as detailed in paragraph 27A(3).

Conclusion

In any transfer of chargeable interests between group companies, understanding these steps and principles is essential to determining SDLT liabilities accurately. Companies should ensure they follow the provisions of the regulation closely and correctly claim any applicable exemptions or reliefs to minimise potential tax implications.