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.