Withdrawal of Stamp Duty Lamp Tax
17 December 2008
HMRC has recently clarified its opinion on some of the circumstances which may give rise to a withdrawal of Stamp Duty Lamp Tax (SDLT) group relief.
When land or buildings are transferred between members of the same group of companies a complete relief from SDLT will normally apply. There are some conditions to be satisfied, for instance there must not be arrangements in place for the companies party to the transfer to be controlled by different persons and hence de-group. However, there are a number of circumstances when even if SDLT group relief is available at the outset it can be later withdrawn requiring the SDLT that would have been payable but for group relief to be paid.
Such a withdrawal of group relief will apply where the purchaser ceases to be a member of the same group as the vendor within three years of the transaction or at anytime in connection with arrangements made before the end of that three year period and the purchaser holds the land or building transferred or an asset or assets deriving from it.
There are various cases in which group relief will not be withdrawn in the way described above.
It has, since the introduction of SDLT, been the case that group relief is not withdrawn where the vendor company leaves the group rather than the purchaser. It was felt by HMRC that this provision facilitated tax avoidance and the provision has now been qualified so that although there will be no loss of group relief upon the vendor leaving the group, there will be such a loss if there is a subsequent change in control of the purchase within three years.
The circumstances considered to be a change in control of the purchaser are very wide indeed and have been some cause of concern within the tax industry. The recent HMRC guidance is helpful in that it clarifies some common situations in which HMRC either consider that there is no change of control or they will not in any event apply the legislation to withdraw group relief.
Of particular interest in light of the current economic climate is HMRC's view on liquidation. When a liquidator is appointed there is a loss in beneficial ownership of assets held by the company (including shares in a subsidiary) to the liquidator. HMRC now accept that provided the liquidation is part of a genuine scheme of reconstruction which involves a successful claim to reconstruction or group relief neither the appointment of the liquidator nor the eventual liquidation of the company will be considered to involve a change in control of its subsidiaries.
It should be noted however that this does not seem to cover a partition reconstruction where eventual economic ownership passes outside of the group. HMRC has also clarified its opinion of an existing provision which prevents a withdrawal of group relief where the purchaser and the vendor cease to be members of the same group because of anything done for the purposes of or in the course of winding up of the vendor or another company that is above the vendor in the group structure.
HMRC has long held the view that a "company above" the vendor in the group cannot include the purchaser. We consider that as a matter of law HMRC's view has been incorrect however it has been particularly problematic in the case of reconstructions where although HMRC may have been incorrect there was still the inconvenience and cost of dealing with a challenge by HMRC to be considered.
However, HMRC has now confirmed that a "company above" can include the purchaser. In addition HMRC has confirmed that if this provision applies the change in control provisions set out above will also not normally apply.
This guidance from HMRC is welcomed as it provides an increased degree of certainty to groups of companies in respect of the circumstances giving rise to withdrawal of group relief and is particularly relevant when a group wishes to restructure.