SDLT Group relief
The initial purchasing company can claim 100% relief from SDLT if the circumstances for group relief are met.
The exemption covers all movement of land and buildings and to the grant of a lease between group companies.
The conditions for claiming SDLT Group relief are at FA 2003, Sch. 7 and are set out as follows:
- the purchase and vendor must be companies and members of the same qualifying group (providing the transfer is between members of a 75% group);
- the transaction must take place for bona fide commercial reasons and there must not be any tax avoidance motive:
- the consideration to acquire the property must come from within the corporate group itself.
- no arrangement should be in place in which the purchaser and vendor companies would cease to be members of the same group.
The purchasing company must claim group relief on a SDLT1 return by inserting relief code 12 and showing a market value transfer purchase consideration on the return, even though there is no charge to SDLT. It is recommended to hold on to the relevant land transaction documentation in the event of a HMRC enquiry into the relief claim, as there is no ability to attach the documents to the SDLT1 return.
Group relief is clawed back, however, if the company purchasing the property is no longer a member of the same group as the vendor if:
the purchaser ceases to be a member of the same group as the vendor –
(i) before the end of the period of three years beginning with the effective date of the transaction, or
(ii) in pursuance of, or in connection with, arrangements made before the end of that period,
SDLT Deemed Market Value rule for transfers to connected companies
As there are plans for the group company to transfer the land to its shareholders who include a connected company in the form of a distribution in specie, we need to consider the deemed market value rules at Finance Act 2003, Section 53 and the exceptions from the deemed market value rules at Section 54(3). It is assumed that the requirements of Companies Act 2006 are met for a distribution in specie to be made.
Section 53 applies to all transfers between a vendor (individual or company) and a company connected to them, when the company is the purchaser or some or all the consideration for the transaction consists of the issue or transfer of shares in a company with which the vendor is connected.
SDLT is calculated on the deemed purchase price (chargeable consideration) for the transaction, and this shall be not less than–
(a) the market value of the subject-matter of the transaction as at the effective date of the transaction, and
(b) if the acquisition is the grant of a lease at a rent, that rent.
However, by virtue of FA 2003, s. 54, there are some exceptions to the FA 2003, s. 53 market value charge where:
- immediately after the transaction the company holds the property as a professional trustee.
- where immediately after the transaction the company holds the property as trustee and the seller is connected with the company only because of CTA 2010, s. 1122(6) (for example, because the seller is settlor).
- where the seller is a company and the transaction is part of a distribution of the assets of the company (whether or not in connection with its winding up) and within three years preceding the effective date of the transaction, the subject matter of the transaction has not been the subject of a group relief claim by the seller.
Observations
From the third bullet point above, please note that it is very important that if the ultimate receiving company is to avoid a charge to SDLT under section 53 FA 2003, it will be necessary for the company to make the dividend in specie at least three years after any claim for SDLT group relief relating to land.
Corporation Tax
Chargeable gains on assets such as land can be transferred within a group of company on a “no gain/no loss basis” provided that the principal company, and its 75% subsidiaries form a chargeable gains group. However, if a company leaves a group within 6 years of receiving an asset from another company in the group, the no gain/no loss transaction will be ignored, and a Corporation Tax de-grouping chargeable gain or loss could arise.
Legislation: TCGA 1992, s. 171 (no gain/no loss transfer), 175 (single trade for roll-over relief), 179 (de-grouping)
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