SDLTM23040 - Reliefs: Group, reconstruction or acquisition relief

Restrictions on availability FA03/SCH7/PARA2(4A)

FA03/SCH7/PARA2(4A) introduced new restrictions on the availability of Stamp Duty Land Tax group relief under FA03/SCH7.

The effect is that group relief is not available where a transaction

  • is not effected for bona fide (you may also find it useful to look at Section 75A FA 2003 SDLTM09050, ) commercial reasons, or,
  • forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax

‘Tax’ means income tax, capital gains tax, corporation tax, stamp duty or stamp duty land tax.

This guidance gives some examples of transactions where it is accepted that group relief is not denied by FA03/SCH7/PARA2(4A).

It should be noted that the examples are intended only to give general guidance and do not use technical or statutory language, nor should they be interpreted as if they were a statute.

They also assume that the transactions described do not form part of any larger scheme or arrangement which might have tax consequences.

Anyone who wants guidance on a specific transaction is welcome to write to us at the Stamp Office

Examples of transactions where group relief is not denied by FA03/SCH7/PARA2(4A)

  • The transfer of a property to a group company having in mind the possibility that shares in that company might be sold more than three years after the date of transfer
  • The transfer of a property to a group company having in mind the possibility that shares in that company might be sold within three years of the date of transfer, with a consequent claw-back of group relief, in order that any increase in value of the property after the intra-group transfer might be sheltered from stamp duty land tax
  • The transfer of property to a group company having in mind the possibility that either of the above might occur
  • The transfer of a property to a group company prior to the sale of shares in the transferor company, in order that the property should not pass to the purchaser of the shares
  • The transfer of property to a group company in order that commercially generated* rental income may be matched with commercially generated losses from a property income business
  • The transfer of property to a group company in order that commercially generated* chargeable gains may be matched with commercially generated allowable losses
  • The historic transfer of property to a non-resident group company in the anticipation that future appreciation or depreciation in value would be outside the scope of UK tax on chargeable gains
  • Transactions undertaken as part of a normal commercial securitisation
  • The transfer of the freehold reversion in a property to a group lessee in order to merge the freehold and the lease, and thus prevent the lease being subject to the wasting assets rules as respects corporation tax on chargeable gains
  • The transfer of property to a group company in order that interest payable on borrowings from a commercial lender on ordinary commercial terms may be set against commercially generated* rental income
  • Borrowings on ordinary commercial terms
  • from a commercial lender, or
  • intra-group in circumstances which would have been commercial had they arisen between unconnected third parties
  • The transfer of UK properties by non-resident owners to a UK group prior to the April 2019 CGT rebasing and UK exit from the EU

*Including income, gains and losses which are generated intra-group on transactions which would have been commercial had they been entered into by unconnected third parties

‘Transfer’ means the transfer of a freehold or the assignment of a lease.

Cases involving the grant of a lease will need to be considered on their facts.

The list provides examples of where, although a tax advantage might be obtained by the purchaser’s group, SDLT group relief will not be denied subject to the warning that ‘the transactions do not form part of any larger scheme or arrangement which might have tax consequences’

In determining whether the transaction forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax, it is necessary to consider relevant case law.

Whether or not a sequence of steps constitutes avoidance is also informed by FA 2003 sections75A to 75C. HMRC Stamp Taxes acknowledge that deciding to sell shares rather than land so as to pay less tax or SDLT (see paragraph D2.2.1 of HMRC’s General Anti-Abuse Rule Guidance as approved by the Advisory Panel wirh effect from 15 April 2013) represents a straightforward legislative choice and is not, of itself, objectionable.

HMRC approach

The HMRC aim is to give a consistent message to all taxpayers. Where it is possible to identify fact patterns that do not fall within the scope of the TAAR and therefore do not present a risk, HMRC are happy to make this clear. The current guidance including the list of transactions where group relief would not be denied continues to reflect HMRC position. However, there are, as always, a number of events involving a transaction for which group relief may be claimed and which HMRC may wish to raise an enquiry. In any case where an avoidance scheme is disclosed or there is evidence suggesting the implementation of an avoidance scheme, HMRC will raise an enquiry.

To promote greater certainty in HMRC Stamp Taxes approach in the appication of FA 2003 Schedule 7 paragraph 2(4A)(b), HMRC Stamp Taxes confirmed the following, with the warning that the presence of steps in additon to those described below may indicate, when taken together, that there are arrangements of which the main purpose or one of the main purposes is avoidance of tax:

A business may choose to acquire a property-owning company as opposed to acquiring the property from that company.

The purchaser may, after acquiring the company, transfer the property out of the company acquired and into a different company in the purchasing group. HMRC do not regard that of itself, and subject to the list of transactions above, as resulting in the avoidance of tax such that FA 2003 paragraph 2(4A)(b) would be in point, even if the acquisition of the property-owning company and the subsequent intra-group transfer of the property formed part of the same arrangements.

The purchaser may, after acquiring the company and transferring the property intra-group, liquidate, wind-up or strike-off the company acquired. HMRC do not regard that of itself as resulting in, or being evidence of, the avoidance of tax such that FA 2003 paragraph 2(4A)(b) would be in point, even if the liquidation, winding-up or striking-off formed part of the same arrangements that also included the acquisition and the intra-group transfer.

In the events described above, the FA 2003 paragraph 2(4A)(b) analysis would be the same even if the purchaser only became a member of a group for SDLT purposes as a result of the acquisition of the property-owning company.