This relief is provided by the relevant provisions of Part 2 of schedule 11 to the LBTT(S)A 2013.
Guidance on the withdrawal and recovery of reconstruction relief is available separately, see LBTT3032 and LBTT3033 respectively.
Description of relief
Reconstruction relief may be claimed, subject to certain conditions, when a company acquires the whole or part of an undertaking in another company under a scheme of reconstruction.
This relief allows land and buildings to be transferred between two companies, as part of a transfer of an undertaking in exchange for shares, where there is no change of ownership, for example, where a company decides to split an existing business, which is carried on by one company, into two businesses carried on by two companies.
All four of the qualifying conditions must be met for reconstruction relief to apply:
- The acquiring company must acquire the whole or part of the target company for the purposes of the reconstruction of the target company.
- The consideration for the acquisition of the whole or part of the target company must consist wholly or partly of the issue of non-redeemable shares in the acquiring company to all shareholders of the target company. If the consideration consists partly of non-redeemable shares, this condition is met only if the rest of the consideration consists wholly of the assumption or discharge by the acquiring company of the liabilities of the target company.
- After the acquisition is made, each shareholder of each company must also be a shareholder in the other company and every shareholder must hold the same, or nearly the same (see below), proportion of shares of both companies. The intention of this condition is to try and get the beneficial share ownership of the two companies the same as of the target company before the reconstruction. The existence of options, share warrants, different classes of shares with different rights and the states of the share registers can make absolute mirror image impossible hence ‘nearly the same’.
- The acquisition must take place for bona fide commercial reasons and must not form part of an arrangement the main purpose or one of the main purposes of which is to avoid LBTT.
If immediately before the acquisition, the acquiring company or the target company holds any of its own shares, the shares are treated as having been cancelled before the acquisition for the purpose of conditions 2 and 3, so the company is to be treated as if it were not a shareholder of itself.
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.