Businesses that form part of a group can often consider the availability of group relief when buying commercial property for their business or passing the ownership of existing property within the group to a different party. If group relief is available to you then it can result in no stamp duty land tax being chargeable on any land transactions and so you could save significant amounts in taxes.
What Is Stamp Duty Land Tax Group Relief?
Stamp duty group relief also known as ‘corporation tax group relief ‘or ‘group exemption’ is when there is a stamp duty land tax exemption on a sale or a transfer of a property by one group party to another. Stamp duty land tax group relief allows both land and property to be transferred between two businesses of the same corporate group without being charged any stamp duty land tax (SDLT).
The basic rule is that the acquisition of a property is exempt from stamp duty land tax payments if the seller and purchaser are companies within the same corporate group on the effective date of the transaction.
Group relief usually isn’t automatically granted it is the purchasing company who needs to make the stamp duty group relief claim by submitting their case to HMRC in the ordinary way.
When Are Two Businesses Classed As Being Part Of The Same Corporate Group?
Both parties (buyer and seller) are usually thought to be in the same corporate group if all of the conditions below are met:
- One of the businesses owns at least 75% of the share capital of the other company, or;
- A third party and therefore separate company or business owns at least 75% of the share capital of both parties (buyer and seller.)
There are some other considerations which must be met for businesses to be able to claim stamp duty land tax group relief, these are as follows:
- The ownership of 75% of the share capital must be 75% or more of the real equity.
- There must be no plans for the purchaser to leave the group.
- The property transaction must be for commercial purposes only
Definition Of A Company For Stamp Duty Group Relief
It is important to define exactly what HMRC deems to be a company in terms of stamp duty group relief. HMRC states that a company must be a body corporate which includes limited liability partnerships. There are no rules that a company must have UK residency or that the companies within the corporate group are within the same country as one another.
The ‘Real Equity’ Test
There is a test that HMRC have in place to avoid artificial corporate groups being formed for the purposes of claiming stamp duty land tax group relief and other corporate tax exemptions. This is called the ‘real equity’ test.
In most cases, any company that is part of a corporate group would in theory own 75% of the share capital of another company within the group whereas the real ordinary shares would be owned by other people unassociated with the corporate group. HMRC states that ownership must also be 75% or more of the total equity in substance. This can often be complicated so extra caution should be taken if the following applies:
- There are different classifications of shares in the company or an immediate company above them.
- The company or immediate company above them in the corporate group owes debt on a non-commercial loan unless this debt is owed to its parent company.
What If One Of The Companies Involved In The Transaction Goes Into Liquidation?
When a company goes into liquidation it loses all of its assets including its shares in any other companies. So, if the parent company within the corporate group goes into liquidation then it no longer owns any shares in any other organizations resulting in stamp duty land tax group relief being unavailable to them. However, this does not apply if the company was to go into administration.
When a company goes into administration it doesn’t lose ownership of its assets and so it would retain its shares in other companies within the group and so stamp duty group relief would still be available to them.
If it is a business other than the parent company within the group that goes into liquidation or bankruptcy it does not sever its relation to the corporate group or the companies above it within the group and so stamp duty group relief can still apply.
When Is A Stamp Duty Group Relief Claim Not Available?
There are few instances where a stamp duty group relief claim cannot be made usually if there are already arrangements in existence that a person has control (or could gain control) of the purchasing company but not the company who is transferring the property or land then a stamp duty group relief claim may be rejected.
Another instance when group relief on SDLT may be unavailable would be if the purchasing company withdraws from the group within 3 years of the transaction or purchase. In this case, the tax that the group would have been exempt from initially then becomes payable and has to be paid within 30 days after the party’s withdrawal from the group.
Reconstruction relief allows properties to be transferred or bought between two companies that are part of the same corporate group as part of a company transfer or a company restructure where usually there would be an exchange in shares but no overall change in ownership. There is no requirement for an old company to have to go into administration or liquidation it can just distribute its assets or shares to the new company.
Acquisition relief is another form of stamp duty group relief that is available if there is a transfer in the land when one company acquires another. The rate of stamp duty land tax in this case would be limited to 0.5%. To gain this type of stamp duty land tax group relief the old company must transfer all of its undertakings to a new company. The new company cannot be associated with any third party which has arrangements with the old company and the acquisition must be for commercial purposes only.
How Can CapEx Tax Specialists Help?
If you think that you could be eligible for stamp duty land tax group relief or are in the process of making a stamp duty group relief claim then we can help to advise you and ensure that you are providing HMRC with the correct information and documentation. Our team of tax specialists can assist you with understanding the exemption in full and assess whether you would be eligible to claim. Contact us today for more information or to have a chat about what stamp duty exemption you could be entitled to.