Stamp duty land tax (SDLT) is not generally payable on transfers of property that are made between companies in a group. This is because SDLT group relief can generally be claimed in respect of these kinds of transfers. However this group relief can be clawed back if the group relationship is broken within three years. This point will generally be relevant in demerger type transactions where property is separated from other activities.
Mixco operates a trade and a property investment activity. As part of a reorganisation there is a desire to separate the two activities (which could be for a number of reasons). It is proposed that a new holding company (Newco 1) will be put on top of Mixco, investment properties sold up to Newco 1 at book value, and then Mixco (now without the investment activity) transferred to a second holding company (Newco 2) – by means of something called a capital reduction demerger (precise details here being unimportant to the issue at hand). Although group relief should be available in respect of the property transfer here, a common concern is that it will be lost at the point when the parent subsidiary relationship breaks – which will usually occur within 3 years of transfer.
In these kinds of scenarios there is an important protection from clawback for cases where the group breaks as a result of the vendor leaving the group. Usefully, this generally means that a sale by a parent company (which has received a property intra-group in the last three years) of its transferor subsidiary would not fall foul of the SDLT clawback provisions. In contrast, if a parent company were to dispose of its subsidiary at a time when it owns a property that the parent had transferred intra-group then this would be fully within the provisions. This is not surprising as that is exactly the kind of scenario that the rules are aimed at.
This Tax Bite gives an overview of the issues only and the rules are extremely complicated and so particular care is needed when analysing a particular case.
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