HMRC SDLT: SDLTM34390 – Application of exemptions and reliefs: Group Relief
Application of Exemptions and Reliefs: Group Relief
This section of the HMRC internal manual provides guidance on the application of exemptions and reliefs, specifically focusing on Group Relief. It outlines the principles and concepts involved in claiming Group Relief within corporate groups.
- Explains the eligibility criteria for Group Relief.
- Details the process for transferring losses between group companies.
- Highlights the conditions under which relief can be claimed.
- Provides examples to illustrate the application of these rules.
Read the original guidance here:
HMRC SDLT: SDLTM34390 – Application of exemptions and reliefs: Group Relief
Understanding Group Relief and SDLT: The B Ltd Example
When a company transfers a chargeable interest, it may trigger Stamp Duty Land Tax (SDLT) considerations. In this guide, we will use the transfer from B Ltd to a partnership called EP/ELP to explain key concepts in a straightforward manner. If you want to refer to additional specific guidance, please look up SDLTM34390 – Application of Exemptions and Reliefs: Group Relief.
What is a Chargeable Interest?
A chargeable interest generally refers to rights over land or property that are subject to SDLT. When such interests change hands, SDLT is usually applicable.
Key Steps for Assessing SDLT Liability
We will now walk through the process of establishing SDLT liability using specific paragraphs of the SDLT guidance.
Step One: Identify the Relevant Owner(s)
- B Ltd is recognized as a relevant owner because it holds a portion of the chargeable interest immediately before the transaction and becomes a partner in the partnership immediately after the transaction.
Step Two: Identify the Corresponding Partner(s)
- B Ltd qualifies as its own corresponding partner since it is both the relevant owner and becomes a partner immediately after the transaction.
- C Ltd is connected to B Ltd and is part of the same group, making C Ltd also a corresponding partner. This follows the rules set out in Paragraph 27A.
Step Three: Proportional Ownership
Before the transaction, B Ltd owns 100% of the chargeable interest. Since there are two corresponding partners (B Ltd and C Ltd), we can split this percentage in a way that maximizes benefits. For this illustration, we will divide ownership equally (50:50) between B Ltd and C Ltd.
Step Four: Determine Lower Proportions
Next, we determine the lower proportion for each corresponding partner.
- The proportion of chargeable interest calculated in the previous step is 50% for each partner.
- If we compare this to their actual partnership shares, which is also 50% for each, we find that the lower proportion for both B Ltd and C Ltd is 50%.
Step Five: Sum of Lower Proportions
Now, we sum the lower proportions:
- 50 (B Ltd) + 50 (C Ltd) = 100.
Since the total sum of lower proportions (SLP) equals 100%, there is no chargeable consideration for the transaction. This results in no SDLT being charged.
Understanding the Impact of Paragraph 27A and Group Relief
Let’s consider what happens without the provisions under Paragraph 27A.
- If Paragraph 27A had not applied, C Ltd would not have been treated as a corresponding partner in the same way as B Ltd.
- In that case, the SLP would only be 50, which means the chargeable consideration for the transaction would be based on 50% of the market value of the chargeable interest.
Thanks to Paragraph 27A:
- The charge for the transfer to the ELP is calculated based on the earlier finding of the SLP being 100.
- Because C Ltd is considered a corresponding partner, the SDLT charge remains at 0%, resulting in a 50% reduction in chargeable consideration (from 50% down to 0% of the market value).
Filing for Group Relief
When applying the relief under Paragraph 27A, the partnership will need to file a claim for group relief as part of their land transaction return. This claim addresses the reduction in charge—specifically, the 50% benefit seen in the example above.
It is also important to note that the claim must meet the usual conditions for group relief found in Schedule 7, Paragraph 2. However, there are some adjustments specified in Paragraph 27A(3) which should be taken into account.
Example Recap
To recap this process in simple terms:
- B Ltd transfers a chargeable interest to a partnership called EP/ELP.
- The relevant owners and corresponding partners are established based on ownership and connections between companies.
- Proportional ownership can be divided between B Ltd and C Ltd to maximize tax benefits.
- By applying Group Relief under Paragraph 27A, the SDLT charge is minimized, reflecting a significant reduction.
Understanding these steps and rules helps businesses grasp the implications of their transactions regarding SDLT, ensuring compliance and efficiency. This guide illustrates how effective application of group relief can lead to reduced tax obligations.