Exceptions to Group Relief Restrictions Under Finance Act 1986 Explained

When group relief can still apply despite control or de-grouping arrangements

Group relief for land transactions is not always lost just because there are arrangements that could change control, break up a group, or affect share rights. Certain section 75 reconstruction arrangements, limited joint venture contingency clauses, and some unexercised share mortgage arrangements can be ignored, provided the specific conditions are met and all other group relief requirements still apply.

• Section 75 Finance Act 1986 reconstructions can preserve relief where a later share acquisition is part of a qualifying reconstruction and the buyer is in the same group as the acquiring company.
• This reconstruction exception can cover both control-change arrangements and de-grouping arrangements, so long as the section 75 conditions are satisfied.
• Joint venture provisions may be ignored if they only deal with genuine named contingencies, such as insolvency, default, deadlock, or similar events that were planned for but not intended to happen.
• The joint venture exception will not apply if a member, alone or with connected persons, can effectively decide when the transfer or voting suspension is triggered.
• Share mortgages do not automatically block relief if the lender has not enforced its rights and only has normal protective rights as mortgagee.
• These exceptions only remove one possible obstacle; relief still depends on meeting all the usual conditions for group relief.

Scroll down for the full analysis.

When group relief can still apply despite control, de-grouping, joint venture or mortgage arrangements

This page explains some important exceptions to the usual rules that block land transaction group relief where there are arrangements for control to change, for companies to leave a group, or for rights over shares to be triggered. The source material is about LTT group relief, but the practical question is straightforward: when do arrangements that look like they would normally disqualify relief not actually prevent a claim?

What this rule is about

Group relief is normally restricted if, at the time of the land transaction, there are arrangements under which the buyer may come under someone else’s control, or the buyer and seller may cease to be in the same group. Those restrictions are aimed at preventing relief being claimed for transfers that are really part of a sale or break-up of the group.

The material here deals with three exceptions. In these cases, arrangements that would otherwise block relief may be ignored:

• certain reconstructions covered by section 75 Finance Act 1986,
• certain contingency arrangements used by joint venture companies, and
• certain mortgage arrangements over shares or securities.

The effect is not that relief is automatic. It means only that these particular arrangements do not, by themselves, prevent a valid group relief claim if the other conditions for relief are met.

What the official source says

The official material says that the normal prohibition does not apply where arrangements are entered into with a view to a share acquisition by a company that is not the buyer or seller, if that share acquisition is one to which section 75 Finance Act 1986 applies. This is the reconstruction relief provision for an acquisition of the whole or part of an undertaking in pursuance of a scheme for the reconstruction of the target company.

For this exception to apply, the conditions for section 75 must be met, and the buyer in the land transaction must be in the same group as the acquiring company in the share transaction.

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

• a potential change of control, and
• a de-grouping consequence.

Even so, the Welsh Revenue Authority accepts that the exception applies not only to the “control arrangements” rule but also to the “de-grouping arrangements” rule. The source says paragraph 4 must be read as a whole, otherwise the exception would have little practical effect.

For joint venture companies, the source says relief may still be available if the problematic 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 one or more named contingencies occurs, or
• a constitutional provision suspending a member’s voting rights if one or more named contingencies occurs.

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

There is an important limitation. The 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 this rule, members are not treated as connected merely because they are members of the joint venture company.

For mortgages, relief may still be available where the only issue is that a mortgage arrangement could cause the seller and buyer to cease to be in the same group, if:

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

But the exception is lost if the mortgagee has greater rights than are needed to protect its position as mortgagee, or if the mortgagee alone or with connected persons can dictate the terms or timing of the default or other event that would trigger enforcement. For this rule, the mortgagee is not treated as connected with the company whose shares or securities are mortgaged.

What this means in practice

The practical effect is that not every future-looking arrangement is fatal to group relief.

First, if the land transfer happens as part of a genuine reconstruction falling within section 75 Finance Act 1986, the existence of arrangements for a later share acquisition does not necessarily block relief. The source takes the view that this is true even if those arrangements would otherwise amount to both a change of control and a de-grouping plan.

Secondly, joint venture companies often have carefully drafted exit and deadlock provisions. Without a specific exception, those provisions might look like arrangements that can alter control or group relationships and therefore deny relief. The exception recognises that some contingency planning is commercially normal and should not automatically defeat relief, provided it is genuinely contingent and not something a member can trigger at will.

Thirdly, share security given to a lender does not automatically destroy group relief simply because enforcement could break the group. Ordinary secured lending is tolerated if the lender has not enforced and does not have excessive rights or practical control over the trigger for enforcement.

In each case, the key point is that the legislation is trying to distinguish between:

• ordinary commercial or reconstruction arrangements that may never happen or arise only on genuine contingencies, and
• arrangements that effectively pre-plan or enable a disposal, loss of control, or break-up of the group.

How to analyse it

A sensible way to analyse the issue is to work through the following questions.

1. Would group relief otherwise be blocked?

   Start by asking whether there are arrangements under which control of the buyer could change, or the buyer and seller could cease to be in the same group. If not, these exceptions may not be needed.

2. Is the arrangement part of a section 75 reconstruction?

   If the arrangement is linked to an acquisition to which section 75 Finance Act 1986 applies, check that all the conditions for that relief are met and that the buyer is in the same group as the acquiring company. If so, the source says the arrangement should not be treated as disqualifying merely because it involves control change or de-grouping.

3. If it is a joint venture case, is the arrangement limited to specified contingency planning?

   Check whether the provision is either a transfer mechanism for shares or securities, or a voting-rights suspension provision in the constitutional documents. Then check whether the trigger is one of the listed named contingencies, or something genuinely similar that was planned for but not intended to occur.

4. Can anyone dictate the trigger?

   This is critical in both the joint venture and mortgage exceptions. If a member or mortgagee can effectively control when the trigger event happens, the exception may not apply.

5. In a mortgage case, are the lender’s rights no more than ordinary protective rights?

   Review the security package carefully. If the lender has rights going beyond what is needed to protect its position as lender, the exception may be unavailable.

6. Have enforcement rights actually been exercised?

   For the mortgage exception, the source requires that the mortgagee has not exercised its rights against the mortgagor.

7. Are all the other conditions for group relief met?

   These exceptions only remove one obstacle. They do not create relief if the basic conditions for group relief are not satisfied.

Example

Illustration: Company A transfers land to fellow group company B and claims group relief. At the same time, there is a wider reconstruction under which another company, Company C, will acquire shares as part of a transaction intended to fall within section 75 Finance Act 1986. Company C is not the buyer or seller in the land transaction, but B will be in the same group as C after the reconstruction steps.

Ordinarily, arrangements for a change in control of B or for B to cease to be grouped with A might block relief. But if the share acquisition is one to which section 75 applies and its conditions are met, the source says those arrangements do not deny relief on that ground alone.

By contrast, imagine a joint venture agreement saying that if one member becomes insolvent, its shares may be transferred to the others. That may fall within the joint venture exception. But if another member can choose when to trigger the transfer before any genuine contingency occurs, the exception may not be available.

Why this can be difficult in practice

The main difficulty is that these rules are highly fact-sensitive and document-sensitive.

In reconstruction cases, the source adopts an interpretative position that paragraph 4 must be read as a whole so that the section 75 exception also covers de-grouping arrangements. That is a practical and purposive reading, but readers should recognise that this is the authority’s view on how the provisions operate together, not separate wording repeated expressly in each limb.

In joint venture cases, much depends on the drafting. A clause may look like a genuine contingency provision, but if one party can influence the timing or occurrence of the trigger, the protection may fall away. The line between a genuine protective mechanism and a controllable exit route may be narrow.

Mortgage cases raise similar issues. Security documents often contain extensive lender protections. The source allows ordinary mortgage protection, but not rights that go beyond what is needed to protect the lender’s interest. That can require a close reading of enforcement, voting, veto and step-in rights.

Another difficulty is the special connected-person rules. For these particular exceptions, the source modifies how connectedness is assessed. Members of a joint venture are not connected just because of their membership, and a mortgagee is not connected with the company whose shares are mortgaged for this purpose. That can materially affect the analysis, but only within these specific rules.

Key takeaways

• Some arrangements that would normally block group relief are specifically ignored, including certain section 75 reconstructions, certain joint venture contingency provisions, and certain unexercised share mortgages.
• The exception does not make relief automatic; it only removes these arrangements as a reason for refusal if the other conditions for group relief are met.
• The outcome often depends on detailed drafting, especially whether someone can dictate the trigger for a transfer, suspension, default 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 Under Finance Act 1986 Explained

View all WRA LTT Guidance Pages Here