HMRC SDLT: SDLTM23030 – Reliefs: Group, reconstruction or acquisition relief

Reliefs: Group, Reconstruction or Acquisition Relief

This section of the HMRC internal manual provides guidance on reliefs available for group, reconstruction, or acquisition activities. It outlines the principles and concepts related to these reliefs, ensuring compliance with tax regulations.

• Explains the eligibility criteria for different reliefs.
• Describes the process for claiming reliefs.
• Details the documentation required for applications.
• Clarifies the implications of not adhering to the guidelines.

Group Relief: Restrictions on Availability

Overview of Group Relief

Group relief is a provision that allows companies within the same group to share certain tax benefits when one group member buys property from another. However, this relief is not always available. There are specific situations where it applies and situations where it does not.

Key Scenarios Where Group Relief is Not Available

When evaluating whether group relief can be applied, it is important to recognize three specific conditions that disqualify the purchaser from claiming relief:

1. Control Arrangements
2. Consideration from Non-Group Entities
3. Change in Group Status

Let’s go through each of these scenarios in detail.

1. Control Arrangements

Understanding Control
Control refers to the ability to direct the company’s activities or make decisions affecting its operations. For group relief to be available, both companies involved in the transaction must maintain control within the group.

Restriction Explained
Group relief is not granted if there are existing arrangements that would allow a person or group of people to gain control over the purchaser without also gaining control over the vendor. In other words, if the arrangements are set in place to allow someone to control the purchasing company, but not the selling company, group relief cannot be claimed.

Effective Date Consideration
This restriction applies from the effective date of the land transaction. It is essential that any control arrangements in place, or that could take effect on or after this date, are thoroughly examined to determine whether they affect the claim for relief.

Example
If Company A is purchasing a property from Company B and there are agreements that enable a third party to gain control over Company A without gaining any control over Company B, then Company A cannot claim group relief for the transaction. This situation would fall under this restriction, regardless of whether these arrangements are enacted.

2. Consideration Involving Non-Group Entities

Understanding Consideration
Consideration is the payment or value exchanged between parties in a transaction. In group relief scenarios, it is important to identify who is making or receiving this consideration.

Restriction Explained
If any part of the consideration for the transaction involves a non-group company or individual providing or receiving a payment in connection with the transaction, group relief is not available. This is true whether the payment is made directly or through intermediaries.

Points to Note
– Regardless of whether the vendor, purchaser, or another associated company is involved in the arrangements, group relief will be denied if part of the payment comes from outside the group.
– If there are linked transactions that involve payments or receipts from parties outside the group, this will also disqualify the claim for relief.

Example
Consider a situation where Company A (the purchaser) is acquiring property from Company B (the vendor), but a third company, Company C (which is not a part of the group), is involved by offering some financial assistance or payment related to the transaction. In this case, Company A would be unable to apply for group relief due to the involvement of Company C.

3. Change in Group Status

Understanding Group Status
Group status refers to the relationship between companies wherein one company controls another company. Generally, to benefit from group relief, the purchasing company must remain a subsidiary of the selling company or part of the same group.

Restriction Explained
If there are plans or arrangements that would lead to the purchaser no longer being a member of the same group as the vendor—either immediately or in the future—then group relief cannot be claimed. This means that if the arrangement causes the purchaser to stop being a 75% subsidiary of the vendor or another related company, group relief will be denied.

Example
If Company A is purchasing a property from Company B, but there are arrangements in place that would cause Company A to move out of the ownership structure of Company B (and thus not remain a 75% subsidiary), the relief would not be applicable. Such arrangements can create future risks that exclude eligibility for group relief.

Summary of Restrictions

The following points summarise when group relief cannot be claimed:

– Control: If there are arrangements allowing outside control over the purchaser, group relief is not available.
– Consideration: The moment any aspect of the transaction involves consideration from a non-group entity, the claim is denied.
– Group Status: If arrangements suggest that the purchaser might lose its status as part of the group, relief cannot be claimed.

Understanding and evaluating these restrictions is critical when companies within a group engage in property transactions. Careful attention to these rules ensures compliance and helps avoid unexpected tax liabilities. The guidance provided aims to clarify these key concepts and support informed decision-making in transactions involving group relief.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM23030 – Reliefs: Group, reconstruction or acquisition relief

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