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HMRC internal manual

Stamp Taxes on Shares Manual

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Exemptions and reliefs: reliefs: stamp duty group relief - Statement of Practice 3/98

HMRC Stamp Taxes published a Statement of Practice (SP 3/98) on 13 October 1998 about the stamp duty relief for transfers of property and the grant of leases between members of the same group. The text is as follows.

STATEMENT OF PRACTICE: STAMP DUTY GROUP RELIEF

  1. Section 42 Finance Act 1930 gives relief from stamp duty for transfers of property between members of the same group of companies. Section 151 Finance Act 1995 similarly gives relief from duty on the grant of a lease between members of the same group.

  2. Section 27(3) Finance Act 1967 and Section 151(3) Finance Act 1995 are designed to prevent the use of group relief to avoid stamp duty when property, or an economic interest in it, passes out of the group.

  3. This statement sets out Stamp Taxes’ current general practice in order to assist practitioners in determining whether claims to relief might qualify. The treatment of a particular case will of course depend on the precise facts. This statement is for general guidance only; and the facts of a particular transaction may, exceptionally, place it outside the guidelines. It applies also to the equivalent Northern Ireland legislation.

General

  1. Broadly, Section 27(3) and the corresponding provision in Section 151, provide that relief is not to be given if the transfer was made in pursuance of, or in connection with, an arrangement under which:

a. all or part of the consideration for the transfer was to be provided or received, directly or indirectly, by a person outside the group; or

b. the interest being transferred was previously transferred by a person outside the group; or

c. the transferor and transferee were no longer to be part of the same group.

  1. The person claiming the relief when the relevant instrument is adjudicated has the onus of satisfying Stamp Taxes the intra-group transaction is not carried out in pursuance of, or in connection with, an arrangement of a kind which disqualifies the transaction from relief: Escoigne Properties Ltd v IRC [1958] AC 549, 564.

Arrangement

  1. In this context, arrangement means the plan or scheme in pursuance of which the things identified in the subparagraphs of Ss27(3) and 151(3) have been or are to be done: Shop and Store Developments Ltd v IRC [1967] 1 AC 472, 493-494. The arrangement need not be based in contract. It is sufficient if the intra-group transaction may be the first bi-lateral step by which legal rights and obligations are created in pursuance of the arrangement. If there is an expectation that a disqualifying event will happen in accordance with the arrangement and no likelihood in practice that it will not, relief will be refused.

  2. The words in connection with are very broad. In Escoigne, there was a gap of four years between the two steps in issue.

Provision or receipt of consideration by a person outside the group:

Section 27(3); Section 151(3)(a) and (4)

  1. Section 27(3)(a) denies relief where the instrument was executed in pursuance of or in connection with an arrangement under which any of the consideration is to be provided or received, directly or indirectly, by a person outside the group. It also denies relief if the arrangement is one under which the transferor or transferee (or a member of the same group as either of them) is to be enable to provide any of the consideration, or is to part with it, in consequence of a transaction involving a payment or other disposition by a person outside the group. Section 151 lays down similar rules for leases.

  2. In some cases, the question arises whether loan finance for the purchase or lease will disqualify an intra-group transaction from relief. It is necessary to look at all the facts of the individual case, but Stamp Taxes will interpret the provisions in the light of their general purpose of denying relief where the intra-group transaction is a means of saving stamp duty when the property, or an interest in it, moves out of the group. Accordingly, Stamp Taxes are likely to be satisfied that relief is due if the intra-group transaction is not to be followed by a sale of the property transferred, or an underlease, to a person outside the group. If the intra-group transaction is to be followed by a sale or underlease to a person outside the group, but the claimant can demonstrate that stamp duty will be paid in respect of that transaction in approximately the same amount as would have been payable if the intra-group transferor or lessor had itself sold the property or granted the underlease, Stamp Taxes are likely to be satisfied that the intra-group transaction and the transfer or lease out are independent for stamp duty purposes and grant the relief sought.

  3. A transaction is not disqualified merely because the transferee within the group obtains a specific loan for the purchase of the asset; or the loan is secured on the asset; or arrangements are made to replace or novate an existing charge on the property transferred. It will be necessary to consider the facts as a whole, especially if the loan finance is not straightforward finance on ordinary commercial terms.

  4. Intra-group transactions will be very carefully scrutinised, and relief may be refused, where, for example, the intra-group transaction involves or is to be followed by:

_ the creation or transfer of loan stock or equity capital;

_ a capital reorganisation of the transferee;

_ a guarantee by a third party not associated with the group;

_ the creation of a new charge or financial arrangement whereby title to the property is, or may be, vested in the lender otherwise than in satisfaction of all or part of the debt; or

_ the assignment of the freehold reversion or the intra-group lease to a person outside the group.
  1. Similarly transactions will be very carefully scrutinised where:
_ all or part of the consideration for the transaction is to remain outstanding or is

represented by intra-group debt, (as the aim and effect may be to reduce the value of the transferee company on a possible future sale outside the group); or

_ the existing shareholders of the transferee include shareholders outside the group and the transaction is to be followed by the declaration of a dividend in specie, or by the liquidation of the transferee.
  1. Further assurances by way of statutory declaration - the document in which the claim is made to Stamp Taxes - will be required in any case in which the property transferred or vested intra-group is the only, or only substantial, asset of the transferee. Information to that effect should be provided in the statutory declaration submitted with the documents.

  2. Where group member A has granted a lease to a person outside the group, and subsequently grants an underlease to its fellow group member B, so that the rent already payable by the lessee becomes payable to B rather than A, relief is likely to be given for the intra-group underlease, provided there are no other factors which suggest that relief should be denied.

Property previously conveyed by a person outside the group: Section 27(3)(b)

  1. Section 27(3)(b) was intended to prevent the avoidance of duty on the transfer of property into a group by means of a sub-sale, so as to take advantage of Section 58(4) of the Stamp Act 1891. For example, suppose the property is sold to a group member by a vendor outside the group, but the sale rests in contract without a transfer of the legal title. The group member then sells the property to another member of its own group, and directs the vendor to transfer the legal title to that other member. In accordance with Section 58(5) the transfer completing the sale and the subsale is chargeable to duty only in relation to the sub-sale (thus relieving the effect of Section 4 of the Stamp Act). However, Section 27(3)(b) would deny group relief for that transfer.

  2. Stamp Taxes will continue to apply Section 27(3)(b) to schemes of this type and to any other scheme where an attempt has been made to avoid the duty payable on the acquisition by the group. However, where an outside vendor sells a property to a member of the group, the sale is completed by a transfer and stamp duty is paid on that transfer, Stamp Taxes will normally regard any subsequent intra-group transfer as independent, and grant relief for the transfer within the purchaser’s group.

Dissociation or demerger of transferee: Section 27(3)(c): Section 151 (3)(b)

  1. Before the introduction of Section 27(3), almost all the avoidance devices encountered in this area involved the transfer of property to a subsidiary, often created solely as a vehicle for that property, followed by the transfer of the shares in the subsidiary out of the group. Compared with a transfer of the property out of the group, a substantial amount of duty could be avoided even where the subsidiary paid for the property from its own resources. If the consideration for the intra-group transaction remained outstanding or was represented by debt, duty could be reduced further by reducing the value of the shares - hence Section 27(3)(a).

  2. Section 27(3)(c) was introduced to counter this avoidance in relation to conveyances and transfers on sale. Section 15(3)(b) deals with leases on similar lines.

  3. In cases of this kind, Stamp Taxes will need to be satisfied that the intra-group transfer or lease is not a step in pursuance of an arrangement to demerge the transferee. The existence of such a arrangement may be apparent from company documents, correspondence and other dealings between members of the group and professional advisers, or from discussions or negotiations with the potential purchases, underwriters or minority shareholders.

  4. In practice, Stamp Taxes will apply these provisions so as to preclude group relief if there is evidence of a plan or scheme to dispose of the subsidiary and there is no practical likelihood that the scheme will not be carried through. It will not be regarded as sufficient for the claimant to contend that such an arrangements which is less than contractual may possibly by frustrated by unforeseen events or unlikely occurrences. Even a contract may be frustrated.

  5. As the liability of the relevant instrument must, as a matter of general principle, be determined as at the date of the instrument, the question whether an arrangement of the relevant kind exists must also be determined at that time, although Stamp Taxes may have regard to what is said and done thereafter to establish the true position (Wm. Cory and Son Ltd v IR [1965] AC1088). For the purposes of stamp duty, it is therefore the existence of the scheme or plan to which these provisions direct attention, not the ultimate outcome of steps which may be taken to implement that scheme. Accordingly, statements of practice in relation to other tax have no application in this context.