Exceptions to Group Relief Restrictions in Finance Act 1986 Explained

When group relief is not blocked by reconstruction, joint venture or mortgage arrangements

Group relief for land transaction tax can still be available even if there are arrangements that seem to involve a future change in control or companies leaving the same group. The main exceptions cover qualifying reconstructions under section 75 of the Finance Act 1986, limited contingency arrangements in joint venture companies, and normal mortgage security over shares or securities where the lender has not enforced its rights and does not have excessive control.

• A qualifying section 75 reconstruction will not usually block group relief just because it involves a change of control or de-grouping, provided all section 75 conditions are met and the buyer will be in the same group as the acquiring company.
• Joint venture contingency clauses may be ignored for this purpose if they only allow share transfers or suspension of voting rights on specified events such as insolvency, default, change of control or similar unexpected problems.
• The joint venture exception does not apply if a member, alone or with connected persons, can decide when the contingency happens or when the transfer or voting suspension takes effect.
• Mortgage arrangements over shares or securities may not block relief if the issue only arises because enforcement could break the group, the lender has not enforced its rights, and the security is no more than normal lender protection.
• The mortgage exception is lost if the lender has wider rights than a normal mortgagee needs, or can control the default or other trigger for enforcement.
• These exceptions are narrow and fact-sensitive, so the wording of restructuring documents, joint venture agreements and security documents is often critical.

Scroll down for the full analysis.

When group relief is not blocked: reconstruction, joint venture and mortgage exceptions

This page explains three important exceptions to the rules that can otherwise stop group relief being claimed for land transaction tax. The source material deals with situations where there are arrangements in place that might change control of a company or cause companies to leave the same group. In some cases, those arrangements do not block relief. The detail matters, because the rules are aimed at preventing abuse but are not meant to catch every commercial arrangement.

What this rule is about

Group relief is normally available only where the buyer and seller are in the same group and the statutory conditions are met. But there are restrictions designed to stop relief being claimed where there are arrangements in place for the group relationship to change, especially where control of the buyer is to be acquired or the companies are to be de-grouped.

The material here explains three situations where those restrictions may not apply:

• certain reconstruction transactions involving section 75 Finance Act 1986,
• certain contingency arrangements in joint venture companies, and
• certain mortgage arrangements over shares or securities.

These exceptions matter because a transaction may still qualify for group relief even though, at first sight, there are arrangements that look like they would block it.

What the official source says

The official material says that the general rule denying group relief does not apply in a reconstruction case where arrangements are entered into with a view to shares being acquired by a company that is not itself the buyer or seller in the land transaction, provided the acquisition is one to which section 75 Finance Act 1986 applies, all conditions for that relief are met, and the buyer will be in the same group as the acquiring company.

The source also explains that a section 75 reconstruction will usually involve both:

• arrangements under which someone could obtain control of the transferee, and
• arrangements under which transferor and transferee will cease to be in the same group.

Even so, the Welsh Revenue Authority accepts that arrangements entered into with a view to a qualifying section 75 reconstruction are not treated as either:

• control arrangements that deny group relief, or
• de-grouping arrangements that deny group relief.

For joint venture companies, the source says that relief may still be available where the potentially disqualifying arrangements are of a limited type. They must be either:

• an agreement for shares or securities in the joint venture company to be transferred to one or more members if a named contingency happens, or
• a provision in the joint venture company’s constitution suspending a member’s voting rights if a named contingency happens.

The named contingencies are limited to specified events such as a member leaving voluntarily, insolvency-type events, serious financial deterioration, change of control, default, an external commercial change threatening viability, unresolved disagreement, or a similar contingency that was provided for but not intended to happen when the arrangements were made.

But this exception does not apply if, before the contingency occurs, a member alone or with connected persons can dictate when the transfer or suspension happens.

For mortgage arrangements, relief may still be available where the reason group relief would otherwise fail is that a mortgage arrangement could cause the seller and buyer to cease to be in the same group. The exception applies if:

• the mortgage is secured over shares or securities in the relevant company, and on default or another event the mortgagee can enforce its rights against the mortgagor, and
• the mortgagee has not exercised those rights.

Even then, the exception is lost if the mortgagee has more rights over the shares or securities than are needed to protect its position as mortgagee, or if the mortgagee alone or with connected persons could dictate the terms or timing of the default or other trigger event.

What this means in practice

The practical point is that not every arrangement pointing to a future change in ownership or control will stop group relief.

In a reconstruction, the legislation recognises that a genuine corporate reorganisation under section 75 Finance Act 1986 may naturally involve a change in control and de-grouping. If those features automatically blocked relief, the reconstruction exception would achieve very little. The official view reflected in the source is that the exception must be read purposively, so that a qualifying section 75 reconstruction is not defeated simply because it includes the very changes that reconstruction normally involves.

In a joint venture, the rules recognise that members often need contingency provisions to deal with breakdown, insolvency, default or similar events. Those provisions are common commercial protections. They do not automatically show that there is a plan to break the group relationship in a way that should deny relief. But the exception is narrow. It protects contingency planning, not arrangements that one member can trigger at will.

For mortgages, the law distinguishes between ordinary secured lending and arrangements that give the lender effective control beyond what a normal mortgage requires. A standard share security package will not necessarily block relief if the lender has not enforced it. But if the lender has broader rights than a genuine secured creditor needs, or can control the trigger for enforcement, the exception may not apply.

How to analyse it

A sensible way to approach these rules is to ask the following questions in order.

• Is there a land transaction for which group relief would otherwise be available?
• Are there arrangements in place that could be treated as control arrangements or de-grouping arrangements?
• If so, do those arrangements fall within one of the specific exceptions described here?

Then look at the relevant exception more closely.

For a reconstruction case, ask:

• Is the share acquisition one to which section 75 Finance Act 1986 applies?
• Are all conditions for that section 75 relief met?
• Is the acquiring company different from both the buyer and the seller in the land transaction?
• Will the buyer be in the same group as the acquiring company?

For a joint venture case, ask:

• Is the company genuinely a joint venture company for these purposes?
• Is the relevant arrangement limited to a transfer of shares or securities, or suspension of voting rights?
• Does it operate only on one of the specified named contingencies, or something genuinely similar that was provided for but not intended to happen?
• Before the contingency occurs, can any member alone or with connected persons dictate the timing of the transfer or suspension? If yes, the exception is not available.

For a mortgage case, ask:

• Is the security genuinely a mortgage over shares or securities?
• Would the issue only arise because enforcement could cause the companies to leave the same group?
• Has the mortgagee actually exercised its rights? If it has, the exception is not available on the basis described here.
• Does the mortgagee have only the rights reasonably needed to protect its position as lender?
• Can the mortgagee, alone or with connected persons, dictate the terms or timing of the default or trigger event? If so, the exception is lost.

Example

Illustration: A company transfers land to another company in the same group and expects to claim group relief. At the same time, the wider corporate structure is being reorganised under a scheme that qualifies under section 75 Finance Act 1986. As part of that reconstruction, control of the buyer will ultimately move within the reorganised structure, and the original group relationship may end. On a simple reading, those changes might look like arrangements that block relief. But if the acquisition is genuinely within section 75, its conditions are met, and the buyer will be in the same group as the acquiring company, the official material says those arrangements are not treated as disqualifying control or de-grouping arrangements for this purpose.

Why this can be difficult in practice

The hardest part is often characterisation.

In reconstruction cases, the exception depends on section 75 Finance Act 1986 applying and all of its conditions being met. That is a technical question in its own right. If the reconstruction does not in fact qualify, the protection described here may fall away.

In joint venture cases, much can turn on the drafting of shareholder agreements and constitutional documents. A clause may appear to be a contingency provision, but if one member can effectively control when the contingency arises or when the transfer or suspension takes effect, the exception may not apply.

Mortgage cases can also be finely balanced. Security rights that look commercially standard are more likely to fit the exception. But where the lender has unusually extensive rights, or can influence the trigger for enforcement, the arrangement may be seen as going beyond normal mortgage protection.

The source also reflects an interpretative point rather than just a black-letter rule. In relation to section 75 reconstructions, the WRA says paragraph 4 must be read as a whole so that the reconstruction exception is effective in practice. That is important, but readers should recognise that this is the authority’s stated interpretation of how the provisions work together.

Key takeaways

• Arrangements that would normally block group relief do not always do so; there are specific exceptions for qualifying reconstructions, joint venture contingencies and certain mortgage arrangements.
• A section 75 Finance Act 1986 reconstruction can still allow group relief even though it involves a change of control or de-grouping, if the statutory conditions are met.
• The exceptions are narrow and fact-sensitive, especially where someone can control the trigger for a transfer, suspension or enforcement event.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Exceptions to Group Relief Restrictions in Finance Act 1986 Explained

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