HMRC SDLT: SDLTM23090A – Reliefs: Group, reconstruction or acquisition relief

Reliefs: Group, Reconstruction or Acquisition Relief

This section of the HMRC internal manual provides guidance on reliefs related to group, reconstruction, or acquisition activities. It outlines the principles and conditions under which these reliefs can be applied.

• Group relief allows companies within a group to transfer losses between each other.
• Reconstruction relief applies during company restructuring processes.
• Acquisition relief is available for certain asset acquisitions.
• Eligibility criteria and procedural requirements must be met for each relief.

Group Relief Withdrawal: Examples

Understanding Group Relief

Group relief is a Stamp Duty Land Tax (SDLT) provision that allows certain transfers between companies within the same group to be exempt from tax. When companies that are closely connected engage in a property transaction, group relief helps reduce the tax burden.

Key Points about Group Relief

– Eligibility: A company can claim group relief when it acquires property from another company that it is part of a group with. The companies must be linked, usually with one holding at least 75% of the shares in the other.
– No Cash Transactions: One of the main benefits of group relief is that the transfer does not need to involve any money changing hands. An asset can be transferred for free.
– Three-Year Rule: The companies must stay within the same group for a full three years following the transaction to retain the benefits of group relief. If a company leaves the group before this period ends, the relief can be withdrawn.

Example of Group Relief Withdrawal

Let’s consider an example to illustrate how group relief withdrawal works:

– Parties Involved: Company A and Company B
– Ownership Structure: Company B is completely owned (100%) by Company A. Therefore, both companies qualify as a group for SDLT purposes.

Transaction Details

1. Initial Transfer:
– Company A (the vendor) transfers the title of a piece of land to Company B (the purchaser) without any payment. This transaction is the relevant transaction for SDLT.
– Company B claims group relief during this transfer.

2. Event Triggered:
– Within three years of this transfer, Company A sells its shares in Company B to an unrelated third party. The date of this sale is significant.

3. Market Value Assessment:
– On the date of the transfer (07/07/2006), the market value of the parcel of land was £1,750,000. This is the figure that would be used for calculating SDLT if applicable.

Consequences of Withdrawal

When Company B sells the shares and leaves the group:

– Loss of Group Relief: Group relief is withdrawn because Company B is no longer part of the same group as Company A within three years of the relevant transaction.

– SDLT Liability: Even though Company B still holds the freehold interest, now it must pay SDLT based on what would have been applicable had group relief not been claimed.

– The SDLT due will be calculated on the original market value of £1,750,000 as of the effective date of the transaction.
– Any increase in the property’s value after the original transfer does not affect this calculation; the SDLT is based on the value at the time of the original transaction.

Important Considerations for Companies

– Maintain Group Structure: Companies looking to take advantage of group relief must ensure they maintain their group status for the required duration.
– Plan Transactions Carefully: Before transferring assets, it’s essential to consider the implications of potential future sales or structural changes that might lead to losing group relief.
– Seek Professional Advice: Given the complexity and potential tax implications, it’s wise for companies to consult tax professionals to navigate SDLT and group structures accurately.

Linking Reliefs to Transactions

When planning transactions under the group relief provisions, remember that the arrangement of ownership and any future intentions to sell or restructure can change the tax obligations for your company. Keeping these relationships clear is vital in ensuring you do not inadvertently trigger additional tax liabilities.

By understanding these principles, companies can make informed decisions and keep their SDLT liabilities in check, avoiding unexpected charges down the line.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM23090A – Reliefs: Group, reconstruction or acquisition relief

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