Budget Notes

BN59 STAMP DUTY LAND TAX (SDLT): GROUP RELIEF: ANTI-AVOIDANCE

Who is likely to be affected?

1. Groups of companies seeking to avoid payment of stamp duty land tax (SDLT) on large commercial transactions.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to amend provisions that enable groups to transfer assets within a group and then sell the purchasing company on to a third party without incurring SDLT.

Operative date

3. This change will have effect for any transaction the "effective date" of which is on or after 13 March 2008. The effective date is normally the date of completion not the date of exchange of contracts. However, the effective date may be earlier than the date of completion if the contract is "substantially performed", for example, if the purchaser takes possession or pays the purchase price in advance of completion. Most residential contracts will not be "substantially performed" in advance of completion.

Current law and proposed revisions

4. Paragraph 1 of Schedule 7 to the Finance Act 2003 allows companies to claim group relief on transfers of assets between group members.

5. A restriction is placed on the relief where a property is transferred to a group company and the purchaser then ceases to be a member of the same group as the vendor. HM Revenue & Customs (HMRC) can then "claw back" any group relief.

6. HMRC have identified a number of avoidance schemes structured to avoid the "clawback" provisions in the legislation. The transactions are structured in such a way that it is the vendor who leaves the group first, thereby allowing the purchasing company to subsequently leave the group without there being any "clawback" of SDLT group relief.

7. This legislation will have effect where the vendor leaves the group and there is then a subsequent change in the control of the purchaser within a period of three years of the asset having been transferred. The provision will enable HMRC to link these two events and treat the purchaser as having left the group first.

8. Group relief will not be clawed back where only the vendor leaves the group.

9. Draft legislation and explanatory notes have been published today on the HM Revenue & Customs website.

Further advice

10. If you have any questions about this change, please contact Yasmin Ali on 020 7147 2804 (email: yasmin.ali@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk