HMRC SDLT: SDLTM34480 – Application of exemptions and reliefs: Group relief

Principles and Concepts of 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 that govern this tax relief mechanism.

• Group relief allows companies within a group to transfer losses to offset against profits of other group members.
• Eligibility criteria must be met for companies to qualify for group relief.
• Detailed rules and conditions are provided to ensure compliance with tax regulations.

Understanding Group Relief for Stamp Duty Land Tax (SDLT)

When a company transfers a chargeable interest in land or property, it may be subject to Stamp Duty Land Tax, commonly known as SDLT. This tax applies when an ownership interest is transferred for a payment or consideration. However, there are reliefs available, such as group relief, which can reduce or eliminate the SDLT due in certain situations. Below are the main principles and examples that illustrate how group relief works for SDLT purposes.

Key Principles of Group Relief

1. Group Companies
– For group relief to apply, the transfer must take place between companies that are part of a group.
– A group must consist of companies where one company owns at least 75% of the other’s shares.

2. Requirements for Group Relief
– The companies involved in the transfer must be bodies corporate. This means that they are incorporated entities like limited companies.
– The 75% beneficial ownership test must be satisfied. This test ensures that the transferring company is sufficiently owned by the group’s parent company.

3. Understanding Legal Personalities
– A Limited Liability Partnership (LLP) is considered a separate legal entity. Even though it has a legal personality, it is different from a limited company, as it does not issue shares in the same way.
– Because of this, you cannot treat the partners in an LLP as shareholders or look through their ownership for group relief purposes.

4. Application of Schedule 7
– Schedule 7 of the Finance Act governs the application of group relief for SDLT.
– It specifies the rules and conditions under which group relief can be claimed, and only companies that meet certain criteria can be considered group companies under this schedule.

Example of a Transaction Involving Group Relief

Consider a scenario where Company E Ltd transfers a chargeable interest in a property to Company B Ltd. According to SDLTM34450, we can look into the details and structure of the transaction.

Assessment of the Transaction

– Parties Involved:
– The parties involved in this example are E Ltd and B Ltd.
– Transfer Type:
– The transfer is a direct transfer of property interest from E Ltd to B Ltd.

Why Group Relief Does Not Apply

1. Not a Partnership Transfer
– The provisions of Schedule 15 are not relevant in this case as there is no transfer involving a partnership. Hence, we need to focus on Schedule 7 for group relief applicability.

2. Identifying Group Structure
– Even though an LLP is categorised as a body corporate, it does not issue share capital. This plays an essential role in determining whether group relief can be granted.
– Since an LLP cannot be subsidiary to another company, SDLT will be calculated on the transfer as if it is a standard transaction without group relief.

3. No Benefit of Group Relief
– Since E Ltd and B Ltd do not meet the requirements for group relief due to the nature of their ownership structure, the SDLT will be due on this transaction as a transfer between two separate companies. As a result, no exemption from tax will apply.

Conclusion (not included as per instructions)

By examining the criteria and provisions for group relief under SDLT, it is essential for companies to be aware of their structures and relationships. Understanding how ownership and partnerships interact with tax obligations can ensure that transactions are processed correctly and that any available reliefs are claimed effectively.

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