Guidance

Stamp Duty Land Tax group relief

Published 7 August 2013

Background

The meeting arose out of uncertainty surrounding HM Revenue and Customs (HMRC) Stamp Taxes’ current approach to the availability of Stamp Duty Land Tax (SDLT) group relief, and in particular the application of the targeted anti-avoidance rule (TAAR) in Finance Act (FA) 2003 Schedule 7 paragraph 2(4A), in the context of intra-group asset transfers following corporate acquisitions. It follows on from the increased focus on SDLT compliance by HMRC adopting a risk-based methodology to identify where HMRC compliance activity needs to be directed. Group relief has been identified as a risk area and as a consequence a number of enquiries have been raised. The concern expressed by representative bodies is that, while wholly respecting the compliance process, genuine commercial transactions have stalled in the face of uncertainty over the application of the TAAR to certain common transaction patterns.

Legislative context

FA 2003 Schedule 7 paragraph 2 provides for a number of restrictions on the availability of group relief including provisions similar to those applying to Stamp Duty group relief under FA 1930 section 42 and FA 1967 section 27. SDLT group relief can also be clawed back in certain circumstances, and the clawback rules are subject to additional anti-avoidance rules introduced in Finance (No 2) Act 2005 and FA 2008 to combat particular SDLT avoidance schemes entered into by a vendor group prior to sale.

In addition from 20 July 2005, group relief is not available if the transaction is not effected for honest commercial reasons or the transaction forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax (FA 2003 Schedule 7 paragraph 2(4A)). ‘Tax’ means in addition to SDLT, Stamp Duty, Income Tax, Corporation Tax and Capital Gains Tax (FA 2003 Schedule 7 paragraph 2(5)). The aim of the measure and the context in which it was introduced was considered by the Economic Secretary to the Treasury during the Finance Bill debates in Standing Committee B of 30 June 2005 at column 298 onwards.

Concern over the breadth of the FA 2003 Schedule 7 paragraph 2(4A) and its application to commercial transactions led to the issue of guidance in the form of a list of transactions where group relief would not be denied, now included in the HMRC SDLT manual at SDLTM23040. Guidance on Stamp Duty group relief can also be found in Statement of Practice 3 (1998) and for SDLT in Tax Bulletin 70.

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 sections 75A 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 with 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 application of FA 2003 Schedule 7 paragraph 2(4A) (b), HMRC Stamp Taxes confirmed the following, with the warning that the presence of steps in addition 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 mentioned 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.