HMRC SDLT: SDLTM34365 – Application of exemptions and reliefs: Group Relief
Group Relief: Application of Exemptions and Reliefs
This section of the HMRC internal manual provides guidance on the application of exemptions and reliefs related to Group Relief. It outlines the principles and concepts necessary for understanding how Group Relief can be applied within corporate groups.
- Explains the criteria for eligibility for Group Relief.
- Details the process for claiming Group Relief.
- Discusses the impact of exemptions on Group Relief claims.
- Provides examples to illustrate the application of these principles.
Read the original guidance here:
HMRC SDLT: SDLTM34365 – Application of exemptions and reliefs: Group Relief
Understanding SDLT and Group Relief: Case Study
This guidance explains the Stamp Duty Land Tax (SDLT) implications when transferring a chargeable interest to an English Partnership (EP). We’re focusing on the application of paragraph 27A.
Context of the Example
In this scenario, we have a transfer of a warehouse valued at £1,000,000 to an EP. The partnership consists of the following four partners:
- A Ltd – 45%
- B Ltd – 35%
- C Ltd – 15%
- D Ltd – 5%
Understanding the connections between these partners is essential for determining SDLT liability. Here are the relationships:
- A Ltd and B Ltd are connected and belong to the same group for SDLT purposes.
- C Ltd is owned by Mr X, who also owns the group that includes A Ltd and B Ltd.
- D Ltd operates independently and is unconnected to the others.
Steps for Assessing SDLT Liability
Step One: Identify Relevant Owners
A Ltd is considered a relevant owner because it holds part of the chargeable interest before the transaction and continues to be a partner after the transaction.
Step Two: Identify Corresponding Partners
For each relevant owner, we must identify who their corresponding partners are.
- A Ltd: As a relevant owner and partner after the transaction, A Ltd’s corresponding partner is itself.
- B Ltd: Because B Ltd is linked to A Ltd and both are in the same SDLT group, B Ltd will also be treated as a corresponding partner.
- C Ltd: Even though Mr X owns C Ltd and the group that includes A Ltd and B Ltd, C Ltd is not connected to A Ltd. Therefore, paragraph 27A does not apply to C Ltd.
For guidance on determining group relationships, refer to SDLTM23014.
Step Three: Establish Chargeable Interest Ownership
A Ltd owns 100% of the chargeable interest just before the transaction occurs. Since we have two corresponding partners (A Ltd and B Ltd), we need to allocate this ownership proportionately. Here we choose to divide it equally:
- A Ltd: 50%
- B Ltd: 50%
Step Four: Determine Lower Proportions
Now, we need to compare the proportions of the chargeable interest for each corresponding partner with their respective partnership shares.
- Chargeable interest proportions (from Step Three):
- A Ltd: 50%
- B Ltd: 50%
- Partnership shares:
- A Ltd: 45%
- B Ltd: 35%
The crucial point here is that since both partners’ partnership shares are less than their chargeable interest percentage, we must use their partnership share values:
- A Ltd: 45%
- B Ltd: 35%
Step Five: Total the Lower Proportions
Next, we add the lower proportions together:
- 45% (A Ltd) + 35% (B Ltd) = 80%
This total indicates the chargeable consideration for the transaction, which will be calculated as 20% of the market value of the charged interest:
- Chargeable consideration = 20% of £1,000,000
- Chargeable consideration = £200,000
Application of Paragraph 27A and Group Relief
Had paragraph 27A not applied, then B Ltd wouldn’t have been treated as a corresponding partner. In this case, the relevant partnership share would have been just 45%, which is A Ltd’s share. This would have meant that the chargeable consideration for this specific transaction would have amounted to:
- Chargeable consideration = 55% of the market value
- Chargeable consideration = 55% of £1,000,000
- Chargeable consideration = £550,000
However, since paragraph 27A applies, this allows for a reduced charge on the transfer to the EP. Because B Ltd is considered a corresponding partner, the charge is recalculated based on the 80% figure established earlier:
- The original consideration of £550,000 is reduced to £200,000.
This demonstrates that paragraph 27A effectively allows group relief, thereby reducing the SDLT liability in this scenario. The partnership must submit a claim for group relief on their land transaction return to reflect this reduction in charge (in this case, 35% reduction).
It is important to note that the claim must meet the standard conditions for group relief (as outlined in Schedule 7, paragraph 2), with some adjustments specified in paragraph 27A(3).