Group Relief Withdrawn After Purchaser Exits Group Within Three Years

SDLT group relief withdrawn when the original purchaser leaves the group within 3 years

If a company claims SDLT group relief on a land transfer and then leaves the seller’s group within 3 years, that relief can be withdrawn even if the land has since been passed to another company in the same group. The SDLT charge is based on the original relieved transfer and the property’s value at that time, not its later value.

• Group relief on an intra-group land transfer is not always final and can be withdrawn if the original purchaser leaves the vendor’s group within 3 years.
• A later transfer of the same land to another group company does not necessarily stop the earlier relief from being withdrawn.
• In HMRC’s example, relief on the first transfer from A Ltd to B Ltd is withdrawn when B Ltd is sold outside the group within 3 years.
• The SDLT due on withdrawal is the amount that would have been payable on the original transfer if relief had not been claimed, usually using the market value at that date.
• Any later rise in the property’s value is ignored, and each relieved transfer must be tested separately on its own facts.

Scroll down for the full analysis.

When group relief is withdrawn because the purchaser leaves the group within 3 years

This page explains a specific SDLT group relief problem. It deals with what happens where a company acquires land from another group company with group relief, then later leaves the group within 3 years, even though the land has since been transferred to another company in the same group. The key point is that the original relief can still be withdrawn, and the tax charge is based on the original transaction, not on any later increase in the property’s value.

What this rule is about

SDLT group relief can remove or reduce SDLT on transfers of land between companies in the same group. But that relief is not always final. If certain events happen within 3 years of the original transfer, the relief can be withdrawn.

The official example here focuses on one of those events: the purchaser under the original relieved transaction stops being in the same group as the vendor within 3 years.

This matters because businesses often move property around within a group before a sale of shares. It may be assumed that a later intra-group transfer solves the problem. This example shows that it may not.

What the official source says

The source gives this sequence:

• A Ltd owns B Ltd, and B Ltd owns C Ltd. All are in the same SDLT group.
• A Ltd transfers land to B Ltd for no consideration. B Ltd claims group relief.
• Four months later, B Ltd transfers the same land to C Ltd at an undervalue. C Ltd also claims group relief.
• Within 3 years of the first transfer, A Ltd sells the shares in B Ltd to an unconnected third party. B Ltd leaves A Ltd’s group, and C Ltd leaves with B Ltd.

HMRC’s conclusion is that the group relief on the original transfer from A Ltd to B Ltd is withdrawn. That is because B Ltd, the purchaser in that original transaction, ceased to be a member of the same group as A Ltd, the vendor, within the 3-year period, and no exception applies.

The fact that the land had already been transferred on to C Ltd does not prevent withdrawal of relief on the original A-to-B transfer. HMRC treats B Ltd and its relevant associated company, C Ltd, as still holding the land that was the subject of the original transaction.

The SDLT charge that then arises is the amount that would have been payable on the original A-to-B transfer if relief had not been claimed. In the example, that means SDLT is charged by reference to the market value at the effective date of that original transfer.

The later increase in the land’s value is ignored. The withdrawal of relief revisits the original relieved transaction; it does not create a fresh charge by reference to the property’s later value.

HMRC also says that relief is not withdrawn on the later transfer from B Ltd to C Ltd. That is because, at the time relevant to that transfer, B Ltd and C Ltd remained in the same group as each other.

What this means in practice

The practical effect is that a later intra-group transfer does not necessarily break the link with the original relieved transaction. If the original purchaser leaves the vendor’s group within 3 years, the original relief may still be lost.

That can come as a surprise where the property is no longer held by the original purchaser. The example shows that the legislation can still look through the later transfer where the land remains held within the purchaser’s side of the group, including by a relevant associated company.

The tax charge is tied to the original transaction:

• you look at the original transfer that obtained relief;
• you ask what SDLT would have been due then if relief had not applied; and
• you do not recalculate by reference to the property’s value when the group later breaks up.

So if the property has gone up in value, that increase does not increase the SDLT due on withdrawal of the original relief. Equally, the tax is not reduced just because the later transfer was at an undervalue.

How to analyse it

When reviewing an intra-group property transfer, it helps to work through these questions in order:

• What was the original land transaction on which group relief was claimed?
• Who was the vendor, and who was the purchaser, for that original transaction?
• Did the purchaser cease to be in the same group as the vendor within 3 years of that transaction?
• At that time, did the land remain held by the purchaser or by a relevant associated company?
• Does any statutory exception apply? If the source does not identify one, do not assume there is one.
• If relief is withdrawn, what SDLT would have been payable on the original transaction at its effective date?

It is also important to analyse each transfer separately. In the example, there are two relieved transfers:

• the transfer from A Ltd to B Ltd; and
• the transfer from B Ltd to C Ltd.

The first relief is withdrawn because B Ltd later leaves A Ltd’s group within 3 years. The second relief is not withdrawn merely because B Ltd and C Ltd later leave A Ltd’s wider group. What matters for the second transfer is whether B Ltd and C Ltd ceased to be in the same group as each other in the relevant way.

Example

Illustration: Parent company A transfers land to its subsidiary B and group relief is claimed. B then transfers the same land to its own subsidiary C, again with group relief. A year later, A sells B to an external buyer. B and C both leave A’s group.

On these facts, the relief on the original transfer from A to B can be withdrawn because B, the original purchaser, has left the same group as A within 3 years. The SDLT charge is worked out by asking what would have been payable on the A-to-B transfer at that time. If the property has risen in value since then, that increase is ignored.

But the relief on the later B-to-C transfer is not automatically withdrawn on these facts, because B and C remained in the same group as each other when that transfer took place and the example treats the later group departure as not triggering withdrawal for that transfer.

Why this can be difficult in practice

The difficulty is that group structures and property movements often change several times before a disposal. It is easy to focus only on who owns the land at the end, but the SDLT analysis depends on the particular relieved transaction and the relationship between the original vendor and purchaser.

Another difficulty is that there may be more than one relieved transfer involving the same property. Each one may need to be tested separately. A later transfer within the group does not necessarily eliminate exposure on the earlier one.

The source also refers to no exceptions applying, but does not set them out. That means the example should not be read as saying that relief is always withdrawn whenever the purchaser leaves the group within 3 years. The actual statutory exceptions, if relevant, still need to be checked.

Finally, the idea that the land is still regarded as held by the purchaser and its relevant associated company can be technical. In practice, that means later transfers to connected group companies may not prevent a withdrawal charge on the original transaction.

Key takeaways

• If the purchaser in an SDLT group-relieved transfer leaves the vendor’s group within 3 years, the original relief may be withdrawn.
• A later transfer of the land to another group company does not necessarily protect the original relief.
• If relief is withdrawn, the tax is based on the original transaction and its original market value, not on any later increase in value.

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Useful article? You may find it helpful to read the original guidance here: Group Relief Withdrawn After Purchaser Exits Group Within Three Years

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