Where land transactions take place between members of a group, relief for Stamp Duty Land Tax (SDLT) is available (Part 1 Schedule 7 Finance Act 2003). Companies are members of the same group for the purposes of the relief if one body corporate is a 75 per cent subsidiary of another or if both are 75 per cent subsidiaries of a third body corporate. Broadly, the 75 per cent relationship refers to the beneficial ownership of the subsidiary company's issued ordinary share capital.
A 'company' for group relief purposes is defined in Schedule 7 FA 2003 as a 'body corporate'. HM Revenue & Customs (HMRC) did not consider that a 'body corporate' for the purposes of Part 1 Schedule 7 FA 2003 included a Limited Liability Partnership incorporated under the Limited Liability Partnership Act 2000 (LLP), so that LLPs were disregarded ('looked through') when considering whether a group relationship existed, the members of the LLP being treated as the beneficial owners of the LLP assets.
This view has recently been challenged. Following legal advice, HMRC now accepts that, for the purposes of SDLT group relief, a 'body corporate' does include an LLP. An LLP can therefore be the parent in a group structure. However, as an LLP does not itself have issued ordinary share capital it cannot be the subsidiary of other companies. This also means that any subsidiaries of the LLP cannot be grouped with the companies that are the corporate members of the LLP.
This revised view does not affect which party can claim group relief, but does affect which entities are regarded as forming part of a group. An LLP cannot claim group relief itself because its chargeable interests in land are treated as held by or on behalf of the individual members (Paragraph 2 Schedule 15 FA 2003), and this position is unchanged. As such, in broad terms, an LLP continues to be disregarded if it is the vendor or purchaser in a transaction. In such a transaction group relief may be, in part at least, available if some or all of its members (which are incorporated companies) are themselves grouped. It also follows that if an LLP transfers land to a company that it owns, and that is within the LLP headed group, no group relief will be available as the land is deemed to be owned by the members of the LLP, and those members are not within the same group as the company owned by the LLP.
If SDLT group relief has been incorrectly claimed solely as a result of an LLP in the group structure being disregarded or looked through for the purposes of establishing group relationships then HMRC will not seek to revisit the claim.
Group relief for Stamp Duty is available to bodies corporate that are associated (Section 42 FA 1930). Bodies corporate are associated if one is a 75 per cent subsidiary of another or if both are 75 per cent subsidiaries of a third body corporate. Broadly, the 75 per cent relationship refers to the beneficial ownership of the subsidiary company's issued ordinary share capital. In general, HMRC has taken the view that an LLP, as a body corporate, can be the ultimate parent of a group for the purposes of Section 42 FA 1930. Furthermore, as an LLP does not itself have issued ordinary share capital it cannot be the subsidiary of another company.
Transfers of stock and marketable securities may be made to the parent LLP from a subsidiary body corporate in the same group and qualify for group relief and vice versa. Group relief cannot be claimed on the transfer of stock and marketable securities from a body corporate parent of an LLP to the LLP or to a body corporate subsidiary of the LLP.
As English limited and general partnerships do not have legal personalities separate from the persons who are the partners they must be 'looked through' when establishing bodies corporate that form a group for Stamp Duty Land Tax and Stamp Duty purposes. As such the companies that are the partners of an English general or limited partnership can, depending upon the facts, be grouped with those companies that are below the partnership in the group structure.
Both Scottish limited and general partnerships have legal personalities separate from the persons who are the partners. They cannot therefore be 'looked through' when establishing bodies corporate that form a group. But they are not bodies corporate and so cannot be the parent of a group of companies.
The principles set out in the earlier section on UK partnerships will be applied case by case to non-UK partnerships.
HMRC is actively reviewing the group relief legislation for both SDLT and Stamp Duty, including the change of interpretation covered in this announcement, to understand how well it reflects the underlying policy aims on this changed view of LLPs.
If you have any questions about this announcement please contact Stamp Taxes Policy team on Tel 020 7147 0092.