HMRC SDLT: SDLTM23071 – Reliefs: Group, reconstruction or acquisition relief

Principles and Concepts of Group, Reconstruction or Acquisition Relief

This section of the HMRC internal manual provides guidance on the reliefs available for group, reconstruction, or acquisition transactions. It explains the principles and conditions under which these reliefs can be applied.

• Group relief allows companies within a group to transfer losses to offset profits.
• Reconstruction relief applies to company reorganisations without immediate tax charges.
• Acquisition relief reduces stamp duty on certain share acquisitions.
• Eligibility criteria and compliance requirements are detailed for each relief type.

Guidance on SDLT Reliefs: Group, Reconstruction, or Acquisition Relief

Understanding Group Relief under SDLT

The Stamp Duty Land Tax (SDLT) system allows for relief in specific circumstances when transferring ownership of property between companies within a group. This guidance explains when relief can be claimed and the conditions that must be met for it to apply.

Key Principles of Group Relief

Group relief is aimed at reducing SDLT costs during transactions involving group companies. Here are the essential principles:

– Chargeable Interest: This refers to rights over land that require SDLT.
– Group Company: A company that is part of a group for tax purposes, typically involving a parent company and its subsidiaries.
– Previous Transactions: These must be considered to determine if relief can be applied to current transactions.

Conditions for Group Relief

For group relief to be valid, certain conditions need to be satisfied:

– The company holding the chargeable interest must be transferred out of the original SDLT group within three years of claiming group relief.
– The company that holds the chargeable interest might not be the original buyer or a closely related company.

When to Apply the Clawback Provision

If specific conditions are met, the clawback provisions come into play as if the parties involved were the seller from the prior transaction and the buyer from the most recent one. Here are the criteria that trigger these provisions:

– There is a change of control in the purchaser.
– This happens within three years of the effective date or through arrangements made within this timeframe.
– This change does not cause the paragraph 3 clawback to activate.
– There was at least one transaction involving the acquisition of the chargeable interest or a closely related interest within the three years leading up to the change of control, during which group relief was claimed.

Example Scenario

To illustrate how these principles and conditions work, let’s consider an example:

1. Company Structure:
– Company A owns Company B.
– Company B owns Company C.

2. First Transaction:
– Company A transfers a chargeable interest to Company C and claims group relief during this transaction. This is often referred to as ‘the drop’ because interest drops down from one entity to another.

3. Second Transaction:
– Subsequently, Company C transfers the same chargeable interest or a closely related interest back to Company B. This is known as ‘the bounce’ because the interest bounces back to a related company.

4. Third Transaction:
– Within three years after the drop, Company A sells its shares in Company B to a third party.

In this scenario, the third party purchaser takes over the interest and may have to face clawback provisions under SDLT due to the preceding transactions involving group relief.

Conclusion About Clawback Provisions

When the described conditions are fulfilled, the tax authority considers the transactions together, creating a pathway to reassess the SDLT implications for the third party purchaser due to the series of transfers involving group companies.

This connection between transactions allows HMRC to ensure that tax relief does not lead to excessive tax advantage that ultimately reduces tax revenue.

By understanding these principles and examples, businesses can navigate the SDLT framework effectively while ensuring compliance with tax regulations when transferring properties within their corporate structures.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM23071 – Reliefs: Group, reconstruction or acquisition relief

View all HMRC SDLT Guidance Pages Here