Family businesses are often run through private companies and many own land. Sometimes there is a need to re-organise the holdings of land involving transfer of ownership between companies in the group. In some cases the family may wish to form a new company to create a group structure for the purpose of transferring land into a subsidiary.
In the absence of any relief stamp duty land tax is charged, at various rates depending on the value and type of property, on the consideration (price) for the land transfer. Subject to a valid claim for group relief under the Finance Act 2003, land transactions between group companies are, in principle, exempt from stamp duty land tax. However, relief may be clawed back broadly where:-
- At the time of the land transaction there are arrangements in place for a third party to obtain control of the transferor but not the transferee; or
- The consideration for the transfer is provided by or received by a person who is not a group company; or
- The transferor and transferee cease to be members of the same group within 3 years of the land transaction or pursuant to arrangements made within that period.
Relief will also be denied if the land transaction is not effected for bona fide commercial reasons or forms part of arrangements of which one of the main purposes is the avoidance of liability to tax.
‘Tax’ in this context is not limited to stamp duty land tax but includes income tax, corporation tax, capital gains tax or stamp duty.
There is no statutory procedure available whereby the group can get clearance for a proposed transaction but Her Majesty’s Revenue & Customs (‘HMRC’) has published a list of transactions which it is considered would not be caught by the avoidance rule. However, it is recommended that professional advice is sought.
Where consideration is given for the land transfer a stamp duty land tax return will have to be submitted to HMRC making the appropriate claim for group relief before the land transfer deed can be sent to the Land Registry for registration. It is sensible to seek professional advice regarding the preparation of both the land transfer deed and the stamp duty land tax return.
If you would like advice on stamp duty land tax or any related corporate matters please visit our website or contact Glyn Evans at PowellsLaw on 01934 637911.