LBTT3025 - Group relief

This relief is provided by the provisions of schedule 10 to the LBTT(S)A 2013. Additional guidance is also available in relation to group relief, covering:

• Withdrawal of group relief – LBTT3026
• Circumstances where group relief is not withdrawn – LBTT3027; and
• Recovery of group relief where relief has been withdrawn or partially withdrawn – LBTT3028

Description of relief

Subject to certain rules, group relief provides relief from LBTT where, at the effective date, the seller and buyer are both companies in the same group. Where the rules are met, this allows companies to move property within a corporate group structure for commercial reasons without a liability to LBTT being incurred.

LBTT(S)A 2013 schedule 10 paragraph 2

Claiming the relief

To claim this relief see the guidance on 'How to make a LBTT return and pay tax' which is available separately on our website.

For the purposes of this relief:

• ‘company’ means a body corporate;
• companies are members of the same group if one is the 75% subsidiary of the other or both are 75% subsidiaries of a third company;

LBTT(S)A 2013 schedule 10 paragraph 43

One company (company B) is the 75% subsidiary of another (company A) if the following conditions are met:

• Company A is beneficial owner of not less than 75% of the ordinary share capital of company B (either directly or through another company or companies determined in accordance with sections 1155 to 1157 of the Corporation Tax Act 2010);
• Company A is beneficially entitled to not less than 75% of the profits available for distribution to equity holders of company B; and
• Company A would be beneficially entitled to not less than 75% of any assets of company B available for distribution to its equity holders on a winding-up.

LBTT(S)A 2013 schedule 10 paragraphs 44 and 45

The detailed rules on the qualifying tests in Chapter 6 of Part 5 of the Corporation Tax Act 2010 (group relief: equity holders and profits or assets available for distribution) apply for the purposes of conditions (b) and (c) above. However, sections 171(1)(b) and (3), 173, 174 and 176 to 178 of that Chapter are treated as omitted.

LBTT(S)A 2013 schedule 10 paragraphs 47 and 48

‘Ordinary share capital’ means all the issued share capital of the company, by whatever it is called, apart from any share capital which only confers rights to a fixed dividend with no other rights to participate in the profits of the company.

LBTT(S)A 2013 schedule 10 paragraph 46

‘Control’ is to be interpreted in accordance with sections 450 and 451 of the Corporation Tax Act 2010.

Restrictions on availability

Group relief is not available to the buyer in three situations:

• Where, at the effective date of the transaction, there are arrangements in existence which mean that a person (or persons) has or could obtain control of the buyer but not of the seller. It does not matter whether the arrangements are actually used to obtain control.

However this restriction does not apply if:

• there are arrangements entered into for the purpose of acquiring shares by a company and Stamp Duty acquisition relief under section 75 of the Finance Act 1986 applies and the conditions will be met for a claim to be made, and as a result of the arrangement, the buyer will be a member of the same group as the acquiring company; and
• there are arrangements, one of the purposes of which is to facilitate the transfer of the whole or part of the business of one company to another, Stamp Duty demutualisation of insurance companies (section 96 of the Finance Act 1997) is intended to apply and the conditions for that relief are intended to be met.

LBTT(S)A 2013 schedule 10 paragraphs 3, 4, 9 and 10

• where a purpose of the transaction is connected to arrangements under which the consideration is provided or received directly or indirectly by a person  other than a group company. (A ‘group company’ is a company that at the effective date of the transaction is a member of the same group as the buyer  and the seller). This also applies when the arrangements mean that part of  the consideration is provided or received as a consequence of the carrying out of a transaction (or transactions) involving a payment (or payments) or receipt (or receipts) by a person other than a group company; and

• where a purpose of the transaction is connected to arrangements under which the buyer ceases (or could cease) to be in the same group as the seller by virtue of ceasing to be a 75% subsidiary of the seller or third party company. 

  However this rule does not apply if there are arrangements which include facilitating the transfer of the whole or part of the business of one company to another, to which the provisions on Stamp Duty in respect of demutualisation of insurance companies in section 96 of Finance Act 2007 are intended to apply, and the conditions for that relief are intended to be met.

LBTT(S)A 2013 schedule 10 paragraphs 5, 6, 10 and 11

A targeted anti avoidance rule also applies whereby the relief is not available where the transaction is:

• not effected for bona fide commercial reasons; or
• forms part of arrangements where the main purpose or one of the main purposes of which is the avoidance of a tax liability.

LBTT(S)A 2013 schedule 10 paragraph 8

Group relief and ‘share pledges’

The Land and Buildings Transaction Tax (Group Relief Modification) (Scotland) Order 2018 (the “Order”) amended the rules on group relief and the restrictions to its availability. Prior to the Order, where, for instance, a parent company transferred property to a subsidiary and the parent company granted security to a lender over the shares in the subsidiary, group relief was not available as the pledging of the shares constituted an ‘arrangement’ under which a person (i.e. the lender holding the share pledge) could obtain control of the buyer but not the seller.

The Order added a new paragraph 10A which, if it applies, means that group relief is no longer restricted in such transactions as long as the arrangements in question are:

• a mortgage under the law of England and Wales or Northern Ireland (or analogous arrangements elsewhere in the world) which is secured against shares or securities in a company which, on default or on any other event, allows the lender to exercise its rights, but, at the effective date of the transaction, those rights have not been exercised; or
• an arrangement under the law of Scotland (or analogous arrangements elsewhere in the world) where shares or securities in a company are transferred to a lender with an obligation on them to transfer the shares or securities back to the company if certain conditions are met by the company but under which, on default by the company in meeting the conditions or the happening of any other event, the lender is relieved of the obligation to transfer the shares or securities back to the company. This exception will only apply if the lender has not exercised its rights to retain the shares or securities.

A default could arise where, for example, the company:

• fails or is late in making a capital repayment on the loan;
• fails or is late in making an interest payment on the loan; or
• breaks the banking covenant (certain condition which require the borrower to fulfil certain obligations or prohibit them from taking certain actions).

The paragraph does not apply if the lender:

• possesses greater rights in respect of the shares or securities which are the subject of the arrangements than it requires to only protect its interest as mortgagee or transferee; or
• could alone or together with connected persons dictate the terms or timing of the default or the happening of any event which allows it to exercise its rights/obligations against the company. In determining whether parties are connected for this purpose, the lender is not treated as being connected to the company if it is only by the mortgage arrangements.

The changes introduced by the Order only apply to transactions where the effective date of the transaction is on or after 30 June 2018.

The Scottish Government has announced its intention to bring forward legislation to give retrospective effect to the Order at an appropriate future opportunity. Until such legislation has been approved by the Scottish Parliament and formally commenced, the un-amended legislation will continue to apply to transactions where the effective date is before 30 June 2018.