HMRC SDLT: SDLTM34460 – 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 and applying Group Relief within the UK tax framework.

• Explanation of Group Relief and its purpose in tax management.
• Criteria for eligibility and application of exemptions.
• Detailed guidance on the procedural aspects of claiming reliefs.
• Clarification of common misconceptions and errors.

Understanding Group Relief for SDLT: Application of Exemptions and Reliefs

When there is a transfer of a chargeable interest from a Limited Liability Partnership (LLP) to a limited company, known here as B Ltd, it is important to understand the implications for Stamp Duty Land Tax (SDLT). The relevant details can be found in SDLTM34450. In our scenario, we will follow several steps to determine whether SDLT is payable and how much.

Step 1: Identify the Relevant Owner or Owners

B Ltd qualifies as a relevant owner because:

– After the transfer, it has a right to a share of the chargeable interest.
– Before the transaction, B Ltd was part of the partnership.

This shows that B Ltd has a stake in the property in question both before and after the transfer, making it a relevant owner.

Step 2: Identify the Corresponding Partner

Next, we need to find the corresponding partners linked to each relevant owner.

– Here, B Ltd is its own corresponding partner. This is because it transitioned from being a partner prior to the transfer to becoming the relevant owner after the transfer.
– It is essential to note that C Ltd cannot be a corresponding partner because it is not an individual; it is another company.

Step 3: Evaluate the Interest After the Transaction

In this case, B Ltd is entitled to 100% of the chargeable interest immediately after the transfer.

Given that there is only one corresponding partner (B Ltd), this 100% interest is fully assigned to B Ltd.

Step 4: Determine the Lower Proportion

Now, we will look into the respective proportions for the corresponding partners.

– For B Ltd, the two figures we consider are:
– 100%, which is the proportion of the chargeable interest that belongs to the partner (B Ltd).
– 50%, which represents the partnership share that is allotted to the partner (B Ltd).

From these two figures, the lower proportion is 50%. This means that when calculating SDLT, we will rely on this 50% figure.

Step 5: Calculate the Total Lower Proportion

Since there is only one corresponding partner, which is B Ltd, we do not need to add together any multiple lower proportions. Thus, the total amount we derive from the corresponding partners is 50%.

Calculating Chargeable Consideration

To determine the chargeable consideration, we can use the following formula:

– Chargeable consideration = Market Value (MV) x (100% – Special Rate Percentage (SLP))%

For this example, if we establish that MV is some amount, the calculation would be:

MV x 50% = 50%

This indicates that you have a charge against the property that equates to 50% of its market value.

Understanding Transfers Between Partners

By applying paragraph 2(1) of the regulations, we evaluate the partnership and look through it towards its partners. The result of this application reveals that the transfer is essentially between B Ltd and C Ltd.

In other words, C Ltd is transferring its 50% interest in the property to B Ltd.

Applying Schedule 7 for Relief

As both B Ltd and C Ltd are fully owned subsidiaries of A Ltd, Schedule 7 can apply in this situation, assuming the requirements laid out in Schedule 7, paragraph 2, are adequately fulfilled. This provision offers relief from the charge that has been identified under Schedule 15.

Key Points to Remember

– Relevant Owners: These are entities or individuals with a stake in a property before and after a transfer. In this case, B Ltd is a relevant owner.
– Corresponding Partners: These are partners who hold an interest in the property alongside the relevant owners. B Ltd serves this role for itself, while C Ltd does not qualify.
– Chargeable Interest: This refers to the ownership stake in a property that is liable for SDLT. B Ltd acquires 100% of this interest following the transfer.
– Lower Proportion Calculation: The lower proportion is critical for determining how much SDLT is owed, based on the ownership stakes before and after the transaction.
– Chargeable Consideration: This is calculated using the market value of the property and accounts for varying ownership stakes.
– Exemptions and Reliefs: Schedule 7 provides potential relief from SDLT charges, particularly when transfers occur within groups of companies.

By thoroughly understanding these steps and principles, parties involved in property transfers involving partnerships and limited companies can navigate the SDLT obligations more effectively.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM34460 – Application of exemptions and reliefs: Group Relief

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