STSM042270 | Exemptions and reliefs: reliefs: stamp duty group relief - 'arrangement'

A claim for Stamp Duty group relief under section 42 FA1930 will not be allowed if the transfer was effected in pursuance of, or in connection with, an arrangement under which:

1. part or all of the consideration was to be provided or received, directly or indirectly, by an outsider (section 27(3)(a) FA1967); or

2. the transferor/lessor and transferee/lessee were to cease to be associated because the transferor/lessor, or another body corporate, is to cease to be the transferee’s/lessee’s parent (section 27(3)(c) FA1967); or

3. the beneficial interest transferred was previously transferred by a party other than an associated body corporate (section 27(3)(b) FA1967).

For the relief to apply the onus is on the customer to show that the instrument was not executed in connection with one of these three types of arrangement.

Section 27(3)(a) FA1967

Section 27(3)(a) deals with cases where the consideration for the sale is to be provided directly or indirectly from outside the group. This provision must be considered whenever there is any form of outside finance whatever, for example where there is any form of borrowing or it can be shown that money is flowing around in a circle. The provision is widely drawn and would even bar relief where an outsider releases a debt owed by the transferor. See paragraphs 8 to 14 of the Statement of Practice reproduced in STSM042300.

Section 27(3)(b) FA1967

Section 27(3)(b) stops section 42 relief applying where the parties are also claiming sub-sale relief under section 58(4) Stamp Act 1891.

Where an outsider sells to Company A which in turn sells to Company B (A and B being associated), a conveyance by the outsider direct to B with A’s consent would only be liable on the consideration paid by B.

To allow section 42 relief on B’s purchase from its associated Company A would result in no duty at all being paid on the transaction. Section 27(3)(b) bars group relief in those circumstances. See paragraphs 15 and 16 of of Statement of Practice (SP 3/98) reproduced in STSM042300.

Section 27 (3)(c) FA1967

One of the aims of section 27 is to combat the device whereby a subsidiary company is to leave the group taking with it assets from another related company. An example of the application of section 27(3)(c) is where, under an arrangement;

1. a parent company, A, transfers assets to its subsidiary B, the consideration being left outstanding as a loan, and;

2. B acquires the shares or undertaking of an associated company for consideration of the issue of shares.

That issue of shares results in the breaking of the relationship between A and B. A claim under section 42 in respect of the transfer from A to B would therefore be denied under section 27(3)(c) (and possibly also under section 27(3)(a), if the consideration for the transfer was provided by means of B’s new association). See paragraphs 17 to 21 of of Statement of Practice (SP 3/98) reproduced in STSM042300.

Although Section 27(3)(c) bars relief where there is an arrangement for the transferee to leave the transferor’s group, relief can however be allowed if a subsidiary company transfers assets to its parent and then it leaves the group.

This is commonly known as a “hive up” of those assets. Provided that at the material date the transferred shares were not the subject of equitable obligations in favour of an outsider, there is no restriction on a transferor subsidiary hiving off unwanted assets to any another related company as a preliminary to the sale of the shares of the transferor subsidiary to a purchaser outside the group.

An intra-group transfer may take place as a a preparatory step in connection with a reorganisation or demerger transaction on which relief from Stamp Duty under section 75 FA1986 (see STSM042350) will be sought.

Whilst each claim for group relief will be considered on its own facts, HMRC would not ordinarily expect section 27(3)(c) FA1967 to act to deny group relief where the transferor and transferee cease to be associated as the result of a transaction on which relief under section 75 FA1986 is granted.