Exception from Connected Company Charge on Winding Up Explained

SDLT on land distributed during a company winding up

When land is distributed out of a company during a winding up, the usual SDLT rule for connected companies may sometimes be switched off. However, HMRC says this exception is narrow and will not apply if the company being wound up previously claimed group relief on that land, or on an earlier interest from which it is derived, even if that relief was later clawed back.

• The normal rule in section 53 FA 2003 can charge SDLT on market value for transactions between connected companies.
• Section 54(4) FA 2003 can disapply that market value rule for a genuine distribution of assets on a winding up.
• The exception only applies if the company being wound up did not previously claim group relief on the land being distributed, or on a related earlier interest.
• HMRC’s view is that a past group relief claim still blocks the exception even if the relief was later recovered under Schedule 7 before, or at, the effective date of the distribution.
• In practice, you need to check the nature of the winding-up distribution, the title history of the land, and which company made any earlier group relief claim.

Scroll down for the full analysis.

SDLT and winding-up distributions: when the connected-company market value rule may not apply

This page explains a narrow SDLT point that can matter when land or interests in land are distributed out of a company on a winding up. The issue is whether the usual rule that connected-company transactions are taxed by reference to market value is switched off. The HMRC material says there is an exception, but also explains an important limit to it where earlier group relief was claimed by the company being wound up.

What this rule is about

Under the SDLT rules, transactions between connected companies can be taxed on market value rather than the actual consideration given. That rule is in section 53 FA 2003 and is often called the deemed market value rule.

Section 54 contains exceptions to that rule. The source material deals with one of those exceptions: section 54(4) FA 2003. It concerns distributions of assets on the winding up of a company.

The practical question is this: if a company is being wound up and it distributes land to a connected company or other connected person, do you ignore the connected-company market value rule? The answer may be yes, but only if the statutory conditions are met.

What the official source says

The HMRC material says that section 54(4) FA 2003 provides an exception from the deemed market value rule in section 53 FA 2003 for a distribution of assets on the winding up of a company.

According to the source, the exception applies only if the land being transferred, or an interest from which that land interest is derived, has not previously been the subject of a transaction for which the company being wound up made a claim to group relief.

The source then adds an important statement of HMRC’s view. HMRC says it is not its intention that section 54(4) should apply where:

• the company being wound up had made a group relief claim in relation to the relevant earlier transaction, but
• that relief was later recovered under paragraph 3 of Schedule 7, either at the effective date of the winding-up distribution or before that date.

So, on HMRC’s reading, a prior group relief claim by the vendor company can still block the exception even if that relief has already been clawed back.

What this means in practice

If land is distributed on a winding up, you should not assume that the transfer automatically escapes the market value rule just because it happens in a liquidation context.

The first question is whether the transaction is a distribution of assets on the winding up of a company. If it is not, section 54(4) is not in point.

If it is, the next question is whether the land now being distributed, or an earlier interest from which it is derived, was acquired by the company being wound up in a transaction for which that company claimed group relief.

If the answer is no, the exception may apply and the connected-company market value rule may be disapplied.

If the answer is yes, HMRC’s published view is that the exception does not apply. That remains HMRC’s position even where the earlier group relief was later recovered under the Schedule 7 clawback rules before, or at, the effective date of the winding-up transaction.

This matters because if the exception does not apply, section 53 may require SDLT to be calculated by reference to market value rather than any actual consideration.

How to analyse it

A sensible way to approach the point is to work through the transaction in stages.

• Identify the current land transaction. Is it genuinely a distribution of assets on a winding up?
• Identify the company being wound up. The source focuses on whether that company, as vendor, had made a group relief claim on an earlier relevant transaction.
• Trace the title to the land. Has the subject matter of the current transaction, or an interest from which it is derived, previously been transferred to that company?
• Check whether the company being wound up claimed group relief on that earlier acquisition.
• If group relief was claimed, check whether it was later recovered under paragraph 3 of Schedule 7, and when that happened relative to the effective date of the winding-up distribution.
• Apply HMRC’s stated position: a prior claim by the vendor company prevents reliance on section 54(4), even if the relief has already been clawed back.

The title history is important. The legislation and HMRC wording are not limited to the exact same legal interest if the current interest is derived from an earlier one. That means a narrower later interest can still be caught if it comes from an earlier interest that was the subject of a group-relieved transaction.

Example

Company A acquires land from another group company and claims group relief on that acquisition. Later, the conditions for retaining that relief are broken, so the relief is recovered under Schedule 7. After that, Company A is wound up and distributes the land to its parent.

On HMRC’s published view in the source material, section 54(4) does not switch off the market value rule for the winding-up distribution. That is because Company A, the company being wound up, had made the earlier group relief claim in relation to that land, even though the relief was later clawed back.

Why this can be difficult in practice

The main difficulty is that this is a technical interaction between three separate parts of the SDLT code:

• the connected-company market value rule in section 53,
• the winding-up exception in section 54(4), and
• the group relief clawback provisions in Schedule 7.

The HMRC material gives a clear view of how those provisions should work together, but it is still necessary to test the exact facts carefully.

In particular, difficulty can arise over:

• whether the transaction is properly characterised as a distribution on winding up,
• whether the current interest is derived from an earlier interest that was acquired under a group-relieved transaction, and
• whether the earlier claim was made by the same company that is now being wound up.

The source also states HMRC’s intention rather than setting out detailed reasoning from the legislation itself. That means the statutory wording still needs to be read closely in any borderline case.

Key takeaways

• A distribution of land on a winding up can fall within an exception to the connected-company market value rule.
• The exception is blocked if the company being wound up had previously claimed group relief on the land, or on an interest from which the current interest is derived.
• HMRC says the exception still does not apply even if that earlier group relief was later recovered under Schedule 7 before, or at, the effective date of the winding-up transaction.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Exception from Connected Company Charge on Winding Up Explained

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