LBTT3032 - Withdrawal of reconstruction or acquisition relief

The withdrawal (or partial withdrawal) of reconstruction relief (see LBTT3030) or acquisition relief (see LBTT3031) is provided by the relevant provisions of Part 4 of schedule 10 to the LBTT(S)A 2013.

Reconstruction or acquisition relief is withdrawn or partially withdrawn:

• where control of the acquiring company changes within three years of the effective date of the transaction for which reconstruction or acquisition relief was claimed (the ‘relevant transaction’); or
• if there are arrangements put in place within that period which result in a change of control after the three year period.

This rule applies where at the time control of the acquiring company changes, the acquiring company or one associated with it holds a chargeable interest that was acquired by the acquiring company under the relevant transaction or a chargeable interest derived from it. That chargeable interest must not have been subsequently acquired at market value under a chargeable transaction in which reconstruction and acquisition relief was available but not claimed.

For the purposes of the withdrawal of the relief, control of a company changes when the company becomes controlled by:

• a different person;
• a different number of persons; or
• two or more persons at least one of whom is not the person, or one of the persons, by whom the company was previously controlled.

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. A company (A) is the 75% subsidiary of another company (B) if B:

• is beneficial owner of not less than 75% of the ordinary share capital of A;
• is beneficially entitled to not less than 75% of any profits available for distribution to equity holders of A; and
• would be beneficially entitled to not less than 75% of any assets of A available for distribution to its equity holders on a winding up.

Chapter 6 of Part 5 of the Corporation Tax Act 2010 (group relief: equity holders and profits or assets available for distribution applies to (b) and (c) above as it applies to section 151(4)(a) and (b) of that Act but sections 171(1)(b) and (3), 173, 174, and 176-178 are to be disregarded.

Amount of tax chargeable when relief is withdrawn

Where relief is withdrawn, the amount tax chargeable is the amount of tax that would have been chargeable in relation to the relevant transaction but for the relief if the chargeable consideration had been the market value of the subject matter of the transaction or in the case of the grant of a lease, the rent.

Amount of tax chargeable when relief is partially withdrawn

Where relief is partially withdrawn, the amount of tax chargeable is an appropriate proportion of the amount of tax chargeable when relief is withdrawn in full, taking into account the subject matter of the relevant transaction and what is held by the acquiring company and if applicable, any associated companies.

However, the relief is not withdrawn or partially withdrawn where control of the acquiring company changes as a result of:

• a share transaction that takes place in connection with a divorce, nullity of marriage, judicial separation or dissolution of a civil partnership;
• a share transaction that takes place in connection with a person’s death that that varies a disposition of property and meets the conditions of that exemption from LBTT;
• an exempt intra-group transfer (but see the rules about ‘Withdrawal of relief on subsequent non-exempt transfer’). An exempt intra-group transfer means a transfer of shares effected by an instrument that is exempt from Stamp Duty under section 42 of the Finance Act 1930 or section 11 of the Finance Act (Northern Ireland) 1954;
• a transfer of shares to another company in relation to which share acquisition relief applies – but see the rules about ‘Withdrawal of relief where share acquisition relief applied but control of company subsequently changes’; or
• a loan creditor becoming, or ceasing to be, treated as having control of the company and the other persons who were previously treated as controlling the company continue to do so.

Withdrawal of relief on subsequent non-exempt transfer

Reconstruction or acquisition relief is withdrawn or partially withdrawn if control of the acquiring company changes as a result of an exempt intra-group transfer and:

• a company holding shares in the acquiring company to which the exempt intra-group transfer related (or that are derived from shares to which the transfer related) ceases to be a member of the same group as the target company within three years of the effective date of the transaction for which reconstruction or acquisition relief was claimed or in connection with arrangements made within that three year period; and
• where the acquiring company or a relevant associated company holds a chargeable interest that was transferred to the acquiring company by the relevant transaction (or that is derived from an interest transferred) and the chargeable interest has not been subsequently transferred at market value under a chargeable transaction for which reconstruction and acquisition relief was available but not claimed.

Withdrawal of relief where share acquisition relief applied but control of company subsequently changes

Reconstruction or acquisition relief is withdrawn or partially withdrawn if control of the acquiring company changes as a result of a transfer of shares to another company in relation to which share acquisition relief applies and:

• control of the other company changes within three years of the effective date of the relevant transaction or in connection with arrangements made within that three year period;
• at the time that control of the other company changes it holds shares transferred to it as a consequence of the transfer of shares from the acquiring company (or any shares derived from that transfer of shares); and
• at that time the acquiring company or a relevant associated company holds a chargeable interest that was transferred to the acquiring company by the relevant transaction (or that is derived from an interest transferred) and the chargeable interest has not been subsequently transferred at market value under a chargeable transaction for which reconstruction or acquisition relief was available but not claimed.