HMRC SDLT: SDLTM23090D – Reliefs: Group, reconstruction or acquisition relief

Reliefs: Group, Reconstruction or Acquisition Relief

This section of the HMRC internal manual provides guidance on the principles and application of group, reconstruction, or acquisition relief. It is designed to aid understanding of tax reliefs available during corporate restructuring.

• Explains the eligibility criteria for claiming reliefs.
• Details the conditions under which reliefs can be applied.
• Outlines the procedural steps for claiming these reliefs.
• Provides examples to illustrate the application of reliefs.

Reliefs for Group, Reconstruction or Acquisition in Stamp Duty Land Tax

This article explains some important reliefs available under Stamp Duty Land Tax (SDLT) when transactions occur between companies in a group. It focuses on how a purchaser can lose the right to claim relief if they leave the group within a set time frame and how tax is handled in such situations. Below are the key principles and ideas related to these reliefs with examples.

What is Group Relief?

Group relief allows companies that are part of the same corporate group to transfer property or land without paying Stamp Duty Land Tax (SDLT) on the transaction. This relief benefits companies by reducing their tax burden during internal property transactions.

Understanding the Group Structure

To illustrate group relief, consider the following example:

• A Ltd owns B Ltd completely (100%).
• B Ltd also completely owns C Ltd (100%).

All three companies form a group for the purposes of SDLT as they are linked through ownership.

The Relevant Transaction

In our example, let’s say A Ltd sells the freehold interest in a piece of land to B Ltd without charging any payment. This is known as the ‘relevant transaction.’ Though the transaction does not involve money, the land has a market value of £1,000,000. B Ltd can claim group relief on this transaction under the SDLT rules.

Subsequent Transactions

Shortly after this, B Ltd decides to transfer the freehold interest to C Ltd for £1,100,000. The market value for the property at this point is also £1,100,000. Here’s what happens:

• C Ltd is eligible to claim group relief for the transfer; however, it does not do so.
• Stamp Duty Land Tax is then paid based on the market value of the land at the time of the transfer.

Leaving the Group

Things change when A Ltd sells its shares in B Ltd to a third party that is not part of the corporate group. This sale occurs within three years of the relevant transaction mentioned earlier.

• At the time of this sale, the market value of the land transferred earlier is now £1,750,000.
• As a result of the share sale, B Ltd leaves the corporate group. Since C Ltd relies on B Ltd for complete ownership, it also leaves the group.

Impact of Leaving the Group on Group Relief

Here is a key point to remember: if the purchaser (B Ltd) leaves the group, the group relief claimed at the beginning can be affected.

• Since B Ltd is no longer a member of the same group as A Ltd (the original vendor) within the three-year period, the relief may be taken back.
• However, the freehold interest was transferred to C Ltd under circumstances where market value was considered.

Stamp Duty Land Tax Obligations

Despite the group relief withdrawal, it’s essential to note the following:

• The freehold interest that was transferred to C Ltd had an associated market value transaction.
• Even though C Ltd did not claim group relief, SDLT was paid at the time on the transfer.

In light of these actions, there is no additional Stamp Duty Land Tax owed as it had already been settled during the time of the transfer to C Ltd.

Summary of Key Points

• Group relief under SDLT allows internal transfers within a group without tax obligations.
• Leaving the group within three years can lead to a withdrawal of relief, depending on subsequent transactions.
• Even with relief issues, if SDLT has been paid for a transfer, no further tax is required.

Practical Considerations

These scenarios show the importance of understanding how group structure impacts Stamp Duty Land Tax when engaging in property transactions between group companies. Here are some considerations that companies should keep in mind:

• Always assess the group company structure before transferring property.
• Document whether group relief was claimed to avoid future complications.
• Monitor any changes in ownership that might affect group relief eligibility.

In conclusion, the SDLT rules regarding group transactions can have significant implications for tax liabilities. Therefore, it’s important for companies to engage a tax advisor familiar with these topics, which can lead to better financial and operational decisions within corporate groups.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM23090D – Reliefs: Group, reconstruction or acquisition relief

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