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HMRC internal manual

Stamp Taxes on Shares Manual

Exemptions and reliefs: reliefs: stamp duty group relief - 'arrangement'

A claim to relief will not be allowed if the transfer was effected in pursuance of, or in connection with, an arrangement under which:

(1) part or all of the consideration was to be provided or received, directly or indirectly, by an outsider (FA67/S27(3)(a)); or

(2) the transferor/lessor and transferee/lessee were to cease to be associated because the transferor/lessor, or another body corporate, is to cease to be the transferee’s/lessee’s parent (FA67/S27(3)(c)) or,

(3) the beneficial interest transferred was previously transferred by a party other than an associated body corporate (FA67/s2727(3)(b)).

For the relief to apply the onus is on the customer to show that the document was not executed in connection with one of these three types of arrangement.

Section 27(3)(a)

Section 27(3)(a) deals with the case where the consideration for the sale is to be provided directly or indirectly from outside the group. This provision must be considered whenever there is any form of outside finance whatever, for example where there is any form of borrowing or it can be shown that money is flowing around in a circle. The provision is widely drawn and would even bar relief where an outsider releases a debt owed by the transferor. See paragraphs 8 to 14 of the Statement of Practice reproduced later in this chapter.

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Section 27(3)(b)

Section 27(3)(b) stops section 42 relief applying where the parties are also claiming relief under SA1891/S58(4) or, in other words, sub-sale relief. Where an outsider sells to Company A which in turn sells to Company B, A and B being associated, a conveyance by the outsider direct to B with A’s consent would only be liable on the consideration paid by B. To allow section 42 relief on B’s purchase from its associated Company A would wipe out any duty altogether on the transaction. Section 27(3)(b) bars group relief in those circumstances. See paragraphs 15 and 16 of the Statement of Practice reproduced later in this chapter.

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Section 27(3)(c)

One of the aims of section 27 is to combat the device whereby a subsidiary company is to leave the group taking with it assets from another related company. An example of the application of section 27(3)(a) is where, under an arrangement, (1) a parent company A transfers assets to its subsidiary B, the consideration being left outstanding as a loan, and (2) the subsidiary acquires the shares or undertaking of an associated company for consideration of the issue of shares. That issue of shares results in the breaking of the relationship between A and B. A claim under section 42 in respect of the transfer from A to B would therefore be denied under section 27(3)(c) (and possibly also under section 27(3)(a), if the consideration for the transfer was provided by means of B’s new association). See paragraphs 17 to 21 of the Statement of Practice reproduced later in this chapter.

Although Section 27(3)(c) bars relief where there is an arrangement for the transferee to leave the transferor’s group, relief can however be allowed if a subsidiary transfers assets to its parent and then leaves the group. This is commonly known as a “hive up” of those assets. Provided that at the material date the relationship shares were not the subject of equitable obligations in favour of an outsider, there is no restriction on a transferor subsidiary hiving off unwanted assets to any another related company as a preliminary to the sale of the shares of the transferor subsidiary to a purchaser outside the group.