SDLTM09430 - Example 6 – Distribution followed by onward sale

(This example was introduced on 14 May 2021)

Blue Fire Limited is the parent company of White Water Limited.

White Water Limited holds a number of properties, some are used as a property rental business and others are part of a development business. The group are approached by Freddie who wishes to buy White Water Limited but he is only interested in the trade and properties related to the property rental business so an agreement is reached where the trade and properties Freddie is interested in are transferred to a new holding company which he can purchase.

Blue Fire Limited insert Fred Limited in between Blue Fire Limited and White Water Limited by doing a share for share exchange. White Water Limited is then able to distribute the trade and properties that Freddie is interested in to Fred Limited. The shares in White Water Limited are then transferred back into the ownership of Blue Fire Limited so that Fred Limited has no subsidiaries.

SDLT is not payable because the sum of SDLT payable on the scheme transactions is nil as the distribution of the property by White Water Limited to Fred Limited does not incur a market value charge under section 53 FA2003 because case 3 of section 54 FA2003 applies. The other scheme transactions are not within the scope of SDLT.

Freddie purchases all the shares in Fred Limited.

In this case, Section 75A does apply. Working through the conditions of Section 75A:

• White Water Limited has disposed of chargeable interests, those being the properties used in the property rental business so it would be V. Fred Limited has acquired those chargeable interests and so in this scenario it is P.

• There are a number of transactions that are involved in connection with the disposal and acquisition of the chargeable interests and therefore there are scheme transactions. These include the distribution of properties to Fred Limited, the transfer of shares in White Water Limited back to Blue Fire Limited and the purchase by Freddie of Fred Limited. These transactions are interdependent with one another and each one occurs to eventually enable Freddie to purchase Fred Limited holding the desired property.

• As it was always envisaged that Freddie would buy the newly setup Fred Limited once the properties were transferred, the purchase of Fred Limited is a scheme transaction as it is involved in connection with the properties being transferred initially. Also, the purchase of Fred Limited can still be a scheme transaction even though it takes place after Fred Limited acquires the property from White Water Limited, as per section 75A(2)(d).

• However, the notional transaction between V and P gives rise to a higher amount of SDLT than the actual scheme transactions. The last scheme transaction is Freddie purchasing all the shares in Fred Limited, so under Section 75A(6) this date is the effective date of transaction for the notional transaction. The notional land transaction that effects the transfer from White Water Limited to Fred Limited doesn’t give rise to a market value charge under section 53 because White Water Limited and Fred Ltd are not part of the same group on this date. Equally, the notional land transaction cannot benefit from group relief because White Water Limited and Fred Limited, on the effective date of the notional land transaction, are not grouped.

• The chargeable consideration for the notional land transaction is the largest amount, or aggregate amount, given for the scheme transactions (section 75A(5)). In this case, the chargeable consideration would likely be taken as the amount Freddie has paid for the shares in Fred Limited.

• This amount cannot be ignored under Section 75B because the purchase of the shares by Freddie is not a transaction that is merely incidental to the transfer of the properties from White Water Limited to Fred Limited.