HMRC SDLT: Guidance on Group, Reconstruction, or Acquisition Relief for Stamp Duty Land Tax

SDLTM23020 – Reliefs: Group, Reconstruction or Acquisition Relief

This section explains the definitions and principles related to group, reconstruction, or acquisition relief for companies. It outlines what constitutes a group company, the criteria for a 75% subsidiary, and the meaning of control and arrangements under the Corporation Tax Act 2010.

• A company is a 75% subsidiary if another company owns 75% of its ordinary share capital and profits.
• Ordinary share capital excludes shares with fixed dividend rights only.
• Control is defined by the ability to direct company affairs through shareholding or voting power.
• Group companies are those in the same group as the purchaser or vendor during a land transaction.
• Non-group companies are not part of the same group.

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Reliefs for Group, Reconstruction or Acquisition

Introduction

This section outlines the Stamp Duty Land Tax (SDLT) reliefs that apply when companies are involved in group transactions, reconstructions or acquisitions. These reliefs can significantly reduce the SDLT liability when certain conditions are met.

Key Definitions

Understanding the essential terms used in this guidance is important to grasp how the reliefs work.

• Company: A body that is recognised as a corporate entity. Companies are part of the same group if one is a 75% subsidiary of the other or both are 75% subsidiaries of a third company.
• 75% Subsidiary: A company (let’s call it Company B) is considered a 75% subsidiary of another company (Company A) if:
  • Company A owns at least 75% of the ordinary share capital of Company B, either directly or through other companies.
  • Company A is entitled to at least 75% of the profits from Company B that can be distributed to its shareholders.
  • In the event of winding up, Company A would be entitled to at least 75% of any assets distributed from Company B.
• Ordinary Share Capital: This term refers to all the issued share capital of a company, excluding any shares that only receive a fixed dividend and do not participate in the company’s profits.
• Arrangements: This covers any plan, agreement, or understanding, irrespective of whether it is legally enforceable.
• Control: As defined by section 1124 of the Corporation Tax Act 2010, control refers to the power a person holds to manage and direct the affairs of a company. This can occur through:
  • Holding shares in the company or possessing voting rights.
  • Powers granted by the company’s articles of association or other documents governing the organization.
• Group Company: A company that is part of the same group as the purchaser or seller at the time the land transaction takes place.
• Non-Group Company: A company that is not part of the same group.

Eligibility for Relief

To qualify for the SDLT reliefs related to group transactions, reconstructions, or acquisitions, certain criteria must be satisfied. Here are the primary conditions:

• Group Structure: The relief applies when companies in the same group transfer property or land between themselves. This means the transaction should only involve group companies.
• Transaction Types: Reliefs are available for a variety of transaction types, including:
  • Acquisitions where a company takes over another company.
  • Reconstructions where the company structure changes.
  • Transfers of property between group members.
• Thresholds and Limits: It is important to assess whether the specific thresholds for ownership and entitlement are met. If a company is not a 75% subsidiary or part of the group, the reliefs will not apply.

Examples of Group Relief in Action

Consider some practical scenarios to understand how these reliefs work:

• Example 1: Company A owns 80% of Company B. If Company A sells a piece of land to Company B, this transfer may qualify for SDLT relief since both companies are part of the same group.
• Example 2: Company C is a 100% subsidiary of Company D. If Company C acquires another company, Company E, then the land acquired from Company E by Company C may also qualify for relief because it is a group transaction.
• Example 3: Company F has three subsidiaries: Company G, Company H, and Company I. If Company G transfers property to Company H, there would be no SDLT to pay due to the relief, as both are group companies.

Non-Group Transactions

It’s important to note that transactions involving non-group companies are not eligible for these reliefs. Here are some examples:

• Example 4: If Company J, which is not connected to Company K, sells land to Company K, Company K will be liable for SDLT on that transaction because it does not fall under the group relief provisions.
• Example 5: A merger involving Company L and Company M, where Company M owns only 70% of Company L, will not qualify for the relief as Company M does not meet the criteria of having a 75% subsidiary.

Filing and Documentation Requirements

When claiming for relief, specific paperwork must be submitted. Below are the key steps:

• Form Submission: You must submit the SDLT return using the official forms available from HMRC. Ensure that you use the specific forms designated for relief claims.
• Supporting Evidence: It’s important to provide evidence that shows the structure of the group and that the entities involved satisfy the criteria for being qualifying subsidiaries at the time of transfer. This may include:
  • Share certificates.
  • Partnership agreements.
  • Tax documents that prove the ownership structure.
• Timeliness: All documents must be submitted within the time limits specified by HMRC to avoid penalties or interest charges.

Important Considerations

When navigating relief options, consider the following points:

• Transfer Pricing: Valuations and transfer pricing must be accurate, as inaccurate figures can lead to legal issues or claims being rejected.
• Review the Group Structure: Regular checks on the ownership structure are beneficial, especially before significant transactions, to ensure that companies remain eligible as 75% subsidiaries.
• Take Legal Advice: Families of companies often have complicated arrangements. It may be necessary to consult with legal or financial professionals to fully understand implications of the SDLT reliefs and compliance requirements.

References for Further Information

For more detailed guidance and definitions, consult the provisions of the Corporation Tax Act 2010, specifically the sections related to company structures and ownership. Additional detailed rules and eligibility assessments can be found in SDLTM0000 along with various specific guidelines on SDLT relief claims.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Guidance on Group, Reconstruction, or Acquisition Relief for Stamp Duty Land Tax

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