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HMRC internal manual

Stamp Duty Land Tax Manual

Reliefs: Group, reconstruction or acquisition relief

It is recognised that in certain situations strict application of the legislation will result in changes of control which do not reflect an actual change in the economic ownership of the asset. In order to ensure that group relief is not withdrawn in such circumstances a minimum controlling combinations test will be applied in order to establish whether there has been ‘actual’ change in ownership of the asset.

Minimum controlling combination test

If three persons, A, B and C, each hold one third of shares in a company, and they are not connected in any way which would allow the rights and powers of one to be attributed to another, then control is held by A and B, B and C, or A and C but not A, B and C together. This is because for the purposes of the ‘minimum’ controlling combinations you disregard combinations containing superfluous members.

If A leaves then the ‘minimum controlling combination’ test ensures that a change in control will not be triggered. This reflects the fact that B and C ‘control’ the company before and after A’s departure.

If, however, both A and B leave and are replaced by new shareholders D and E then the ‘minimum’ controlling combination test is no longer satisfied. In this situation a change in control has occurred.

Further information regarding minimum controlling combinations is available at CTM60250. The minimum controlling combination test will be applied for SDLT purposes in this matter.

Application of minimum controlling combinations
Share Options

It is possible for an option over shares to result in two unrelated parties both being treated as having contruol of a company. This is because, under section 416(2) ICTA 88, a person is taken to have control of a company if he exercises or is entitled to acquire direct or indirect control over the company’s affairs.

HMRC regards the grant or entitlement date to the shares to be the point at which an ‘inalienable’ right to the shares is triggered. This is the point at which any conditions attached to share options are considered to be satisfied.

If the application of a minimum controlling combinations test does not result in a change in control, then group relief will not be withdrawn.

However, if a change in control occurs as a result of the granting of the shares then group relief will be withdrawn.

Control established through different tests

It is possible for more than one person or one group of persons to ‘control’ a company. For example, one person may gave a greater part of the voting power, while two people hold the greater part of the assets on winding up. All three combinations of people can be taken to have control of the company at the same time.

If there was a change in one of these three combinations, thena change in control would be triggered, which could result in relief being withdrawn.

In the situation there will not be a claw back of relief if one of the minimum controlling combinations established under the tests for control is present following the sale or transfer of shares.