Guidance on the application of Land Transaction Tax in relation to group relief.

Organisation:
First published:
5 April 2018
Last updated:

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LTTA/7061 General overview

(Schedule 16)

This schedule provides for relief from LTT where a land transaction is entered into between group companies (or bodies corporate), where certain conditions are met.

This relief allows groups to move property for commercial reasons without incurring charges to LTT where the conditions for the relief are met.

If the buyer and seller of a chargeable interest are companies (or bodies corporate) and, at the effective date of the land transaction, they are both members of the same group, relief from LTT may be claimed by the buyer. The buyer is not obliged to claim relief and may, however, choose to pay the tax by not claiming the relief. Relief is therefore not available if it is not claimed in a return.

There are certain restrictions on availability.

Where group relief from LTT has been claimed on a land transaction (the relevant transaction) any subsequent withdrawal of the relief must be reported by the buyer on a new land transaction return.

A new land transaction return should also be submitted, reflecting the withdrawal of relief, if:

  • the buyer ceases to be a member of the same group as the seller
  • before the end of a period of 3 years beginning with the effective date of the relevant land transaction, or, 
  • in pursuance of, or in connection with, arrangements made before the end of a period of 3 years, beginning with the effective date of the relevant land transaction.

or:

  • where there is a change of control of the buyer in certain cases involving successive transactions cases.
     

LTTA/7062 Definitions

Key definitions used in this guidance are as follows:

  • ‘arrangements’ includes any scheme, agreement or understanding, whether or not legally enforceable.
  • ‘company’ means a body corporate (this will include a limited liability partnership but the group relief rules apply to limited liability partnerships in very specific ways).
  • 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 (B Ltd) is the 75% subsidiary of another (A Ltd) if A Ltd satisfies the following conditions:
    • is beneficial owner of not less than 75% of the ordinary share capital (either directly or through another company or companies as determined by applying the rules in sections 1155, 1156 and 1157 of the Corporation Tax Act 2010) of B Ltd
    • is beneficially entitled to not less than 75% of the profits available for distribution to equity holders (either directly or through another company or companies) of B Ltd, or
    • would be beneficially entitled to not less than 75% of any assets (either directly or through another company or companies) of B Ltd available for distribution to its equity holders on a winding-up
    • for the purposes of establishing whether a shareholder is entitled to profits available for distribution or any assets on a winding-up, the rules in Chapter 6 of Part 5 of the Corporation Tax Act 2010 apply. However, sections 171(1)(b) and (3), 173, 174, 176, 177 and 178 are to be treated as though they are omitted.
  • ‘constitutional document’ means a memorandum or articles of association, or similar document regulating the affairs of a joint venture company.
  • ‘control’ has the meaning given by sections 450, 451 and 1124 of the Corporation Tax Act 2010. This means the power of a person to secure that the affairs of the company are conducted in accordance with their wishes:
    • by holding shares in the company or having voting power in, or in relation to, the company
    • by virtue of powers conferred by the articles of association of the company or by virtue of any other document regulating the company.

    In relation to restrictions on availability of group relief (paragraph 4) the meaning of control is given by section 1124 of the Corporation Tax Act 2010.

    In relation to situations where group relief is not withdrawn where the seller leaves the group (paragraph 10) control is established in accordance with section 450 and 451 of the Corporation Tax Act 2010.

  • ‘group company’ means a company that at the effective date of the land transaction, is a member of the same group as the purchaser or seller.
  • ‘joint venture company’ means a company which has 2 or more member companies and the joint venture company carries on a commercial activity governed by an agreement regulating the affairs of the members.
  • ‘member’ in relation a company means a company that is in a group of companies. In relation to a joint venture company it means a holder of shares or securities in a joint venture company.
  • ‘mortgage’ in England and Wales and Northern Ireland means any legal or equitable charge and in Scotland means any right in security.
  • ‘non-group company’ is a company that is not a group company.
  • ‘ordinary share capital’ means all the issued share capital of the company, by whatever name called, apart from that share capital which only confers rights to a fixed dividend, with no other rights to participate in the profits of the company.
  • ‘relevant associated company’ means a company in the same group as the buyer immediately before the buyer ceases to be in the same group as the seller, and, ceases to be in the same group as the seller in consequence of the buyer ceasing to be in that group. In relation to cases in which group relief is not withdrawn (paragraph 9) this definition is slightly different and in relation to the buyer means a company that is in the same group as the buyer that ceases to be in the same group as the acquiring company in consequence of the buyer ceasing to be a member of the group.
  • ‘relevant transfer of business or engagement’ means the following transactions described:
    • a transfer of business etc. to which building societies relief would apply ( paragraph 10(1)(a) and (b) of Schedule 22)
    • a transfer of business etc. to which friendly societies relief would apply ( paragraph 11(1) of Schedule 22), and 
    • a transfer of business etc. to which co-operative and community benefit society and credit union relief would apply (paragraph 12(1) of Schedule 22).
  • ‘relieved transaction’ means a transaction that is relieved from LTT as a result of a claim to LTT group relief.

LTTA/7063 Partnerships and other entities in corporate structures

Where the group structure includes a partnership, there are examples of the impact of different types of partnerships on the availability of group relief for a variety of transactions.

Where a group structure includes entities other than those created by UK legislation (for example English limited partnerships, Scottish partnerships and limited liability partnerships) it will be necessary for the taxpayer to establish which treatment is appropriate for that non-UK entity. For entities that may be treated as one type of entity or another based on a vote by the controlling persons, the treatment of the entity will need to reflect the type of entity elected for at the effective date of the transaction.

LTTA/7064 Group relief: Restrictions on availability

(paragraph 4)

Where the buying company (buyer) and selling company (seller) are in the same group, no group relief is available to the purchaser in the following situations:

  • arrangements to transfer control of the purchaser but not the seller
  • arrangements involving the consideration for the transaction
  • arrangements whereby the seller and the buyer cease to be members of the same group. 

Arrangements to obtain control of the buyer but not the seller

No relief is available where there are arrangements in existence which would mean that a person, or persons, could obtain control of the buyer but not of the seller.

This restriction operates where the arrangements are in existence at the effective date of the land transaction, or options etc. are in place at the effective date of the transaction, to bring such arrangements into being.

The arrangements must be such that a person, or persons, could obtain control of the buyer on or after the effective date of the transaction. It does not matter whether the arrangements are actually used to transfer control. 

Example

A Ltd (the seller) owns a property and sells it to B Ltd (the buyer).

The effective date of this land transaction is 1 April 2020.

On 1 April 2020, both A Ltd and B Ltd satisfy the requirements for group relief as B Ltd is a 100% subsidiary of A Ltd and all the other tests are fulfilled.

However, on 1 April 2020, an agreement is made for A Ltd to sell the shares in B Ltd to an unconnected, third party, C Ltd. Group relief is not available to B Ltd because this arrangement would mean that C Ltd would obtain control of B Ltd (the buyer) but not of A Ltd (the seller).

B Ltd will have to make a land transaction return, cannot claim relief in that return and will have to pay any LTT.

Arrangements involving the buyer ceasing to be in the same group as the seller

Group relief is not available where, in connection with, or in pursuance of, an arrangement or arrangements, the buyer ceases (or could cease) to be in the same group as the seller.

This applies where the arrangements act so that the buyer ceases (or could cease) to be a 75% subsidiary of the seller or a third company and so ceases (or could cease) to be in the same group as the seller.

See also guidance in relation to rules relating to the withdrawal of group relief where the buyer ceases to be a member of the same group as the seller following the date of the land transaction.

Arrangements involving the consideration for the transaction

Group relief is not available where a non-group company (or other person), at the effective date of the transaction, is to provide or receive all or part of the consideration for the transaction, and this is done in connection with, or in pursuance of, an arrangement.

The relief is not available whether the consideration is provided or received directly or indirectly. This applies:

  • whether the seller, buyer or another group company are party to the arrangements
  • when the arrangements mean that part of the consideration is provided or received as a consequence of the carrying out of a transaction (or transactions) involving a payment (or payments) or receipt (or receipts) by a person other than a group company.

Example

A Ltd and B Ltd form a group of companies which satisfies all of the requirements for group relief. A Ltd owns an office block, which it wishes to transfer to B Ltd. B Ltd obtains a mortgage secured against the property which it uses as consideration to fund the transfer of the property. Group relief is available in this scenario.

LTTA/7065 Exceptions to restrictions on availability

(paragraphs 4(2), 5 and 6)

Arrangements to transfer control of the buyer but not the seller; section 75 Finance Act 1986 - scheme for reconstruction

(paragraph 4(2))

The general rule prohibiting a claim to group relief does not apply where arrangements are entered into with a view to the acquisition of shares by a company (the acquiring company) that is neither the buyer nor seller in the land transaction.

The share transaction must be a transaction to which section 75 Finance Act 1986 (acquisition of the whole or part of an undertaking in pursuance of a scheme for the reconstruction of the target company) will apply, all the conditions for that relief are met, and the buyer in the land transaction will be in the same group as the acquiring company in the share transaction.

Group relief in relation to transactions carried out in preparation for an acquisition to which section 75 Finance Act 1986 applies will, if they are the following 2 situations, still be able to be subject to a valid group relief claim (so long as all other relevant conditions are met):

  • Arrangements whereby someone could obtain control of the transferee but not of the transferor (‘control’ arrangements) (paragraph 4(1) of schedule 16)
  • Arrangements whereby transferor and transferee will cease to be members of the same group by reason of the transferee ceasing to be a 75% subsidiary of the transferor or of a third company’ (‘de-grouping’ arrangements) (paragraph 4(3)(b) of Schedule 16).

Therefore, any acquisitions to which section 75 Finance Act 1986 apply will include both a change of control and a de-grouping arrangement.

However, group relief is still available because paragraph 4(2)(c) has the effect that arrangements entered into with a view to an acquisition to which section 75 Finance Act 1986 applies are not ‘control’ arrangements denying group relief. Whilst, paragraph 4(3)(b) does not include a similar proviso, paragraph 4 must be read as a whole and the proviso must therefore apply also to paragraph 4(3)(b), otherwise it would in practice be of no effect. The WRA therefore accepts that arrangements entered into with a view to an acquisition to which section 75 Finance Act 1986 applies, are not ‘de-grouping’ arrangements denying group relief.

Arrangements entered into by joint venture companies

(paragraph 5)

Where a joint venture company enters into arrangements that would constitute arrangements which would result in group relief not being available, the relief may still be available where the arrangements have been entered into by a joint venture company.

The arrangements must be either:

  • an agreement which provides for the transfer of shares or securities in the joint venture company to one or more members of that company on or as a result of one or more named contingency happening, or
  • a provision in a constitutional document of the joint venture company which provides for the suspension of a member’s voting rights on or as a result of one or more named contingency occurring.

The named contingencies are:

  • the voluntary departure of a member
  • the commencement of the liquidation, administration, administrative receivership or receivership of, or the entering into of a voluntary arrangement by, a member under the Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order1989 (S.I.1989/2405 (N.I.19)) or the commencement, or entering into, of equivalent proceedings or arrangements under the law of any country or territory outside the United Kingdom
  • a serious deterioration in the financial condition of a member
  • a change of control of a member
  • a default by a member in performing its obligations under any agreement between the members or with the joint venture company (which, for this purpose, includes any constitutional document of the joint venture company)
  • an external change in the commercial circumstances in which the joint venture company operates such that its viability is threatened
  • an unresolved disagreement between the members, and
  • any contingency of a similar kind to that mentioned in any of the bullet points above which is provided for, but not intended to happen, when the arrangements in question were entered into. 

However, this exception does not apply to cases where a member (alone or with connected persons) can, prior to a named contingency occurring, dictate the timing of the transfer of share or securities or the suspension of a member’s voting rights. For the purposes of this particular rule members are not connected with each other by virtue of their membership of the joint venture company.  

Arrangements entered into in relation to mortgages

(paragraph 6)

In the scenario where group relief wouldn’t be available by virtue of a mortgage arrangement resulting in the seller and buyer ceasing to be members of the same group, the relief may still be available if:

  • the mortgage is secured over shares or securities in the company which on default or other event allows the mortgagee (the person lending money) to exercise its rights (most commonly this means the right to enter into possession of the mortgaged interest, or the power of sale) against the mortgagor the person borrowing money), and
  • the mortgagee has not exercised its rights against the mortgagor.

However, group relief will still not be available if the above conditions are met if the arrangements are such that the mortgagee:

  • possesses greater rights in respect of the shares and securities which are the subject of the mortgage than it requires to protect its interest as mortgagee, or
  • alone or together with connected persons could dictate the terms or timing of the default or other event which would allow the mortgagee to exercise its rights against the mortgagor.

For the purposes of this particular rule the mortgagee is not connected with a company whose shares or securities are the subject of the mortgage.

LTTA/7066 Withdrawal of group relief

(paragraph 8)

Group relief must be withdrawn if the buyer ceases to be a member of the same group as the seller:

  • before the end of a period of 3 years beginning with the effective date of the relevant land transaction, or
  • in pursuance of, or in connection with, arrangements made before the end of a period of 3 years beginning with the effective date of the relevant land transaction.

Withdrawal of group relief will occur if at the time the buyer ceases to be in the same group as the seller, the buyer (or a relevant associated company) holds:

  • the chargeable interest that was acquired under the relevant transaction, or
  • a chargeable interest derived from the chargeable interest acquired under the relevant transaction (for example, if a headlease was acquired under the relevant land transaction, the reversion of a sublease granted out of that headlease would be a chargeable interest derived from the original chargeable interest, and,
  • the chargeable interest has not subsequently been acquired at market value by means of a chargeable transaction where group relief was available but was not claimed.

Withdrawal of group relief: amount payable

(paragraph 8)

Where it is necessary to withdraw group relief, the amount of relief withdrawn depends on:

  • the chargeable interest obtained by the buyer on the effective date of the original land transaction
  • the chargeable interest held by the buyer (and any relevant associated company) at the time of the event withdrawing group relief.

The effect of withdrawing the relief is to tax the chargeable interest remaining with the buyer (and any relevant associated company) as if no claim to group relief had been made.

The LTT payable is that which would have been payable in respect of the original land transaction for which group relief was claimed. The chargeable consideration for the transaction is calculated as the market value of the chargeable interest transferred by the original land transaction, and if the acquisition was the grant of a lease at a rent, the amount of that rent.

This rule is modified where the chargeable interest held by the buyer (and any relevant associated company) at the time group relief is withdrawn, is not the same as the chargeable interest transferred by the original land transaction.

In such a case the LTT payable is that which would have been payable in respect of an appropriate proportion of the original land transaction for which relief was claimed.

The appropriate proportion is the fraction of the market values of the chargeable interests held by the purchaser and any relevant associated companies at the time of the withdrawal of group relief. The appropriate proportion is calculated by reference to the effective date of the relevant land transaction compared to the market value of the chargeable interest obtained by the buyer at the effective date of the relevant land transaction.

Withdrawal of group relief in certain cases involving successive transactions

(paragraph 12)

Where the following 4 conditions are met, the rules about withdrawal of group relief apply to a relevant transaction (i.e. a transaction for which group relief was claimed) as if the seller in relation to the earliest previous transaction was the seller in relation to the relevant transaction:

  • there is a change in control of the buyer
  • the change occurs:
    • before the end of the period of 3 years beginning with the effective date of the transaction which is exempt from charge by virtue of this schedule (‘the relevant transaction’), or
    • in pursuance of, or in connection with, arrangements made before the end of that period;
  • the relief in relation to the relevant transaction would not be withdrawn on the previous transaction by the buyer ceasing to be a member of the same group as the seller; and,
  • in relation to any previous transaction:
    • the previous transaction is relieved from charge by virtue of it being a relieved transaction for LTT group relief purposes, or reconstruction relief or acquisition relief;
    • the effective date of the previous transaction is less than 3 years before the date of the change mentioned in the first condition
    • the chargeable interest acquired under the relevant transaction by the buyer in relation to that transaction is the same as, comprises, forms part of, or is derived from, the chargeable interest acquired under the previous transaction by the buyer in relation to the previous transaction, and
    • since the previous transaction, the chargeable interest acquired under that transaction has not been acquired by any person under a transaction that is not relieved from charge by virtue of group relief, reconstruction relief or acquisition relief.

If 2 or more transactions effected at the same time are the earliest previous transactions the reference above to the seller in relation to the earliest previous transaction means any of the sellers in those earliest transactions.

There is a change in the control of a company if:

  • a person who controls the company (alone or with others) ceases to do so
  • a person obtains control of the company (alone or with others), or
  • the company is wound up.

Control is to be established in accordance with section 450 and 451 of the Corporation Tax Act 2010.

Cases in which group relief is not withdrawn

(paragraph 9)

Group relief is not withdrawn where the buyer ceases to be in the same group as the seller because of:

  • anything done for the purposes of, or in the course of, winding up the seller or another company above the seller in the group structure, or
  • the seller or another company above the seller in the group structure ceasing to exist.

A company is above the seller in the group structure if the seller (or another company above the seller in the group structure) is a 75% subsidiary of that company.

Additionally, group relief is not withdrawn if the buyer ceases to be in the same group as the seller as a result of an acquisition of shares by another company (the acquiring company) in relation to which: 

  • section 75 Finance Act 1986 applies (relief for the acquisition of the whole or part of an undertaking in pursuance of a scheme for the reconstruction of a target company) applies
  • the conditions for relief under section 75 Finance Act 1986 are met, and
  • immediately after that acquisition, the buyer is in the same group as the acquiring company.

However, if relief is not withdrawn because of an acquisition of shares under an arrangement that complies with the requirements of section 75 Finance Act 1986, relief may still be withdrawn if the buyer ceases to be in the same group as the acquiring company:

  • before the end of a period of 3 years beginning with the effective date of the relevant land transaction, or
  • in pursuance of, or in connection with, arrangements made before the end of a period of 3 years beginning with the effective date of the relevant land transaction, and
  • the chargeable interest that was acquired by the buyer in the relevant land transaction, or
  • a chargeable interest derived from the chargeable interest acquired in the relevant land transaction (for example, if a headlease was acquired under the relevant land transaction, the reversion of a sublease granted out of that headlease would be a chargeable interest derived from the original chargeable interest), and
  • the chargeable interest has not subsequently been acquired at market value by means of a chargeable transaction where group relief was available but was not claimed.

Seller leaves the group: group relief is not withdrawn

(paragraph 10)

Group relief is not withdrawn if the buyer is not in the same group as the seller as a result of the seller leaving the group. The seller is considered to have left the group if it ceases to be in the same group as the buyer as a result of a transaction relating to shares. The transaction in shares must have been in the seller itself or in another company that is above the seller which, as a result of the share transaction in that company, means that the seller has ceased to be in the same group as the seller.

A company is above the seller in the group structure if the seller (or another company above the seller in the group structure) is a 75% subsidiary of that company.

However, if there is a subsequent change in control of the buyer within 3 years of the effective date of the group-relieved intra group transfer, or at any time in the pursuance of or in connection with arrangements made before the end of that period, then the relief will still be withdrawn.

Example

In the group of P Ltd (parent of 2 sister companies), B Ltd (buyer) and S Ltd (seller), S Ltd transfers a property intra group to B Ltd and group relief is claimed (the qualifying conditions are met). S Ltd then leaves the group. Although B Ltd is no longer part of the same group as S Ltd, group relief is not withdrawn at this stage.

2 years after the purchase by B Ltd, P Ltd sells its shares in B Ltd to an unconnected third party. This change in control of B Ltd will now trigger withdrawal of the original group relief.

Withdrawal of group relief will similarly be triggered if there is a change in the control of P Ltd as this effectively changes the control of B Ltd.

LTTA/7067 Change in control

There is a change in control of the purchaser if:

  • a person who controls the purchaser (alone or with others) ceases to do so,
  • a person obtains control of the purchaser ( alone or with others) or,
  • the purchaser is wound up.

Any references to control are to be interpreted in accordance with section 450 and 451 of the Corporation Tax Act 2010.

This defines control as:

  • control over the affairs of the company
  • control through voting power
  • control through share capital or through issued share capital
  • control over income of the company
  • control over the assets of the company.

Further information concerning control is available in the HMRC guidance.

For the purposes of this rule, there is not deemed to be a change in control of the buyer because a loan creditor obtains control or ceases to control the buyer, so long as the other persons who controlled the buyer before the change arising from the loan creditors control continue to control the buyer. A loan creditor for these purposes is defined in section 453 of the Corporation Tax Act.

Similarly, a change in control does not arise where a new holding company is inserted either between the original ultimate parent company and its shareholders, or between the purchaser and the parent company so long as there is no change in overall economic ownership of the group.

However, where this is a sale of an entire group and this has occurred within 3 years of the transaction, a withdrawal of group relief will be triggered as there has been a change in control of the buyer company, unless the seller remains in the same group as the buyer.

Furthermore, a ‘minimum controlling combinations’ test will be applied in order to establish whether there has been 'actual' change in ownership of the asset. For example, if 3 persons, A, B and C, each hold one third of the shares in a company, and are not connected in any way which would allow the rights and powers of one to be attributed to another, then control is held by A and B, B and C, or A and C but not A, B and C together. This is because for the purposes of the minimum controlling combinations, the combinations containing superfluous persons are disregarded.

If A leaves, the minimum controlling combination test ensures that a change in control will not be triggered. This reflects the fact that B and C 'control' the company before and after A's departure.

However, if both A and B leave and are replaced by new shareholders D and E (each owing a third of the shares) then the minimum controlling combination test is no longer satisfied. In this situation a change in control has occurred.

Further information regarding minimum controlling combinations on GOV.UK.

Share Options

It is possible for an option over shares to result in two unrelated parties both being treated as having control of a company. This is because a person is taken to have control of a company if they exercise, or is entitled to acquire, direct or indirect control over the company's affairs.

An option over shares will not be taken into account in determining whether there has been a change in control of the purchaser. The grant or entitlement date to the shares will be the point at which an 'inalienable' right to the shares is triggered. This is when any conditions attaching to share options are considered to be satisfied and it is at this point that a change in control of the buyer may occur.

If the application of a minimum controlling combinations test at this point does not result in a change in control, then group relief will not be withdrawn.

However, if a change in control does occur as a result of the granting of the shares, then group relief will be withdrawn.

Control established through different tests

It is possible for more than one person or one group of persons to 'control' a company. For example, one person may have a greater part of the voting power, while another person may hold the greater part of the assets on winding up or right to income. All 3 combinations of people can be taken to have control of the company at the same time.

If there was a change in one of these 3 combinations, then a change in control would be triggered, which could result in relief being withdrawn.

However, in this situation there will not be a withdrawal of relief if one of the minimum controlling combinations established under the tests for control is present and that results in control of the buyer and seller remaining in the same persons.

Circumstances that do not constitute a change in control

Liquidation

The appointment of a liquidator and any subsequent liquidation, results in a company losing its beneficial interest in its assets, including any shares it owns in other companies. The commencement of a winding up of a holding company within a group would result in the breaking up of a group. This may present difficulties for groups undertaking genuine reorganisations.

The WRA, in view of the Cabinet Secretary for Finance’s stated intention during the passage of the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 through the Assembly, to provide consistency of treatment before and on and after 1 April 2018, will not view the appointment of a liquidator as resulting in a change of control of a company for the purposes of sub- paragraph 10(5)(b), provided that the liquidation can be shown to be part of a scheme of reconstruction which involves a successful claim to reconstruction or group relief or where the economic ownership of the relevant assets remains within the group. Similarly the eventual liquidation of that company will not be regarded as giving rise to a change in control of its subsidiaries (if any) where the transfer of those shares on the liquidation involves a successful claim to relief from stamp duty or where the economic ownership of those shares remains within the group.

Share transactions in quoted companies

The WRA, in view of the Cabinet Secretary for Finance’s stated intention during the passage of the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 through the Assembly, to provide consistency of treatment before and on and after 1 April 2018, will not construe the meaning of a change in control so widely that simple day to day transactions between unconnected minority shareholders in a quoted company will be seen as a change in control.

Partnerships

Where the purchaser group's majority shareholder is a partnership a withdrawal of group relief may arise if a partner leaves the partnership or a new partner joins, however small the relevant partnership interest is.

The WRA, in view of the Cabinet Secretary for Finance’s stated intention during the passage of the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 through the Assembly, to provide consistency of treatment before and on and after 1 April 2018, the rights or powers held by partners will not be attributed for the purposes of group relief. Furthermore, any changes in the general partner will also be disregarded for the purposes of establishing whether there has been a change in control.

Examples: withdrawal of group relief

Example 1 - Buyer ceases to be a member of the same group as the seller within 3 years

B Ltd is 100% owned by A Ltd. These 2 companies form a group for the purposes of LTT.

A Ltd (the seller) transfers a freehold interest to B Ltd (the buyer) for no consideration on 1 June 2024. This is the relevant transaction. The market value of the freehold interest is £1,000,000 on that date. B Ltd claims group relief in respect of the transfer.

A Ltd sells the shares in B Ltd to an unconnected third party on 1 July 2026. The market value of the freehold interest is £1,750,000 on 1 July 2026. As a result of this sale of shares B Ltd leaves the group on 1 July 2026.

As the buyer (B Ltd) left the same group as the seller (A Ltd) before the end of the period of 3 years from the date of the relevant transaction (which period would end on 31 May 2027), group relief is withdrawn as no exceptions apply.

B Ltd still holds the freehold interest which was the subject of the relevant transaction (the transfer of the interest from A Ltd to B Ltd).

The LTT payable is that which would have been payable on the original land transaction, i.e. on the market value at the effective date of the original land transaction of £1,000,000.

No account is taken of the increase in value of the freehold interest as it is the relief claimed at the time of the relevant transaction that is withdrawn. Similarly, no account would be taken of any fall in value.

An LTT return must be made by 31 July 2026.

Example 2 - Buyer ceases to be a member of the same group as the seller within 3 years, property transferred to another group company

E Ltd is 100% owned by D Ltd. D Ltd is 100% owned by C Ltd. All 3 companies form a group for the purposes of LTT.

C Ltd (the seller) transfers a freehold interest to D Ltd (the purchaser) for no consideration on 1 June 2024. This is the relevant transaction. The market value of the freehold interest is £1,000,000 on 1 June 2024. D Ltd claims group relief in respect of the transfer.

D Ltd then transfers the freehold interest to E Ltd for £250,000 on 1 October 2024. The market value of the freehold interest is £1,100,000 on 1 October 2024. E Ltd claims group relief in respect of the transfer.

C Ltd sells the shares in D Ltd to an unconnected third party on 1 July 2026. The market value of the freehold interest is £1,750,000 on 1 July 2026. As a result of this sale of shares, D Ltd leaves the group on 1 July 2026 (and E Ltd goes with it at it is a 100% subsidiary of D Ltd).

As the buyer (D Ltd) left the same group as C Ltd (the seller) before the end of the period of three years from the date of the relevant transaction (which period would end on 31 May 2027), group relief is withdrawn as no exceptions apply.

D Ltd and its relevant associated company (E Ltd) still hold the freehold interest which was the subject of the relevant transaction (the transfer of the interest from C Ltd to D Ltd).

The LTT payable is that which would have been payable on the original transaction, therefore LTT will be payable on the market value of £1,000,000 (i.e. the market value at the effective date of the original land transaction).

No account is taken on the increase in value of the freehold interest as it is the relief claimed at the time of the relevant transaction that is withdrawn.

Group relief is not withdrawn on the transfer of the chargeable interest from D Ltd to E Ltd as D Ltd and E Ltd are still in the same group as they were when the chargeable interest was transferred to E Ltd.

An LTT return must be made by 31 July 2026.

Example 3 - Purchaser ceases to be a member of the same group as the seller within 3 years, property transferred to another group company

H Ltd is 100% owned by G Ltd. G Ltd is 100% owned by F Ltd. All 3 companies form a group for the purposes of LTT.

F Ltd (the seller) transfers the freehold interest in a parcel of land to G Ltd (the buyer) for no consideration on 1 June 2024. This is the ‘relevant transaction’. The market value of the freehold interest is £1,000,000 on 1 June 2024. G Ltd claims group relief in respect of the transfer.

G Ltd then transfers the freehold interest to H Ltd for £1,100,000 on 1 October 2024. The market value of the freehold interest on that date is £1,100,000. H Ltd could claim group relief in respect of the transfer but does not. LTT is paid on this land transaction on the consideration given of £1,100,000.

F Ltd sells the shares in G Ltd to an unconnected third party on 1 July 2026. The market value of the freehold interest is £1,750,000 on 1 July 2026. As a result of this sale of shares, G Ltd leaves the group on 1 July 2026 (and H Ltd goes with it as it is a 100% subsidiary of G Ltd).

As the buyer (G Ltd) left the same group as F Ltd (the seller) before the end of the period of 3 years from the date of the relevant transaction (which period would end on 31 May 2027), group relief may be withdrawn.

However, the subject of the relevant transaction (the freehold interest) has been the subject of a subsequent acquisition at market value (by H Ltd). LTT was paid on this transaction (at the time) and so there is no further LTT to pay. Had H Ltd not paid LTT on the market value when it acquired the freehold interest on 1 October 2024, group relief would have been withdrawn on 1 July 2026 when H Ltd left the group.

Example 4 - Buyer ceases to be a member of the same group as the seller within 3 years change in chargeable interest held

N Ltd is 100% owned by M Ltd. These 2 companies form a group for the purposes of LTT.

M Ltd (the seller) transfers a freehold interest to N Ltd (the buyer) for no consideration on 1 June 2024. This is the relevant transaction. The market value of the freehold interest is £1,000,000 on 1 June 2024. N Ltd claims group relief in respect of the transfer.

N Ltd grants a lease to an unconnected third party for market value on 1 October 2024. LTT would be payable by the unconnected third party (absent any relief they may be entitled to on the transaction) on the rents and consideration other than rent paid by them.

M Ltd sells the shares in N Ltd to an unconnected third party on 1 July 2026. The market value of the freehold reversionary interest and right to receive rent is £900,000 on 1 July 2026. As a result of this sale of shares, N Ltd leaves the group on 1 July 2026.

As the buyer (N Ltd) left the same group as M Ltd (the seller) before the end of the period of 3 years from the date of the relevant transaction (which period would end on 31 May 2027), group relief is withdrawn as no exceptions apply.

N Ltd now holds the freehold reversionary interest rather than the freehold which was the subject of the relevant transaction (the transfer of the interest from M Ltd to N Ltd).

The LTT payable is that which would have been payable on the appropriate proportion of the original transaction, taking account the chargeable interest transferred by the original transaction and the chargeable interest now held.

The market value of the chargeable interest now held has to be ascertained as at the date of the relevant transaction that is 1 June 2024.

If this was £850,000, the LTT payable is calculated on the market value of the relevant transaction, that is on the market value of the freehold interest (£1,000,000) and reduced by the appropriate proportion i.e. 850,000/1,000,000. Therefore N Ltd would need to send in a return by 31 July 2026 showing consideration of £150,000.

Examples: no withdrawal of group relief

Example 5a - Seller leaves the group

P Ltd is 100% owned by O Ltd. R Ltd is also 100% owned by O Ltd. These 3 companies form a group for the purposes of LTT.

P Ltd (the seller) transfers a freehold interest to R Ltd (the buyer) for no consideration on 1 June 2024. This is the relevant transaction. The market value of the freehold interest is £1,000,000 on 1 June 2024. R Ltd claims group relief in respect of the transfer.

O Ltd then sells the shares in P Ltd to an unconnected third party on 1 July 2026. The market value of the freehold interest is £1,750,000 on 1 July 2026. As a result of the sale of shares P Ltd leaves the group on 1 July 2026.

Group relief is not withdrawn. This is because the only reason the buyer (R Ltd) has ceased to be a member of the same group as the seller (P Ltd) is because the seller has left the group, and there has been no change of control of R Ltd (the buyer) by its parent company, O Ltd.

Example 5b - Seller leaves the group

T Ltd is 100% owned by S Ltd. U Ltd is also 100% owned by S Ltd. W Ltd is 100% owned by T Ltd. These 4 companies form a group for the purposes of LTT.

W Ltd (the seller) transfers a freehold interest to U Ltd (the buyer) for no consideration on 1 June 2024. This is the relevant transaction. The market value of the freehold interest is £1,000,000 on that date. U Ltd claims group relief in respect of the transfer.

S Ltd then sells the shares in T Ltd to an unconnected third party on 1 July 2026. The market value of the freehold interest is £1,750,000 on that date. As a result of the sale of shares, T Ltd leaves the group on 1 July 2026 (and W Ltd goes with it as it is a 100% subsidiary of T Ltd).

Group relief is not withdrawn. This is because the only reason the buyer (U Ltd) has ceased to be a member of the same group as the seller (W Ltd) is because the seller has left the group as a result of a share transaction in another company (T Ltd).

This would also apply if instead of S Ltd selling all the shares in T Ltd, it only sold enough shares so that it no longer owned 75% of them and thus T Ltd (and W Ltd) were no longer grouped.

LTTA/7068 Certain transfers of business etc. by mutual societies: Group relief not withdrawn

(paragraph 11)

Group relief is not withdrawn if:

  • there is a relevant transfer of a business or engagement
  • before the date of that transfer there was a land transaction for which a claim to LTT group relief was made (the ‘relieved transaction’), and
  • as a result of the relevant transfer the buyer of the relieved transaction ceases to be in the same group as the seller before the end of 3 years beginning with the effective date of the relieved transaction (or in pursuance of arrangements made before the end of that period).

LTTA/7069 Recovery of group relief

(paragraph 13)

Once the LTT payable as a result of a withdrawal of group relief has been determined (whether by passage of time or closure of an enquiry or otherwise), liability to pay the tax is the responsibility of the acquiring company.

Where such tax (or any part of it) has not been paid within a period of six months of the date on which it became payable, recovery of the unpaid amount is possible from other persons.

The persons from whom the LTT may be recovered are:

  • a company which at any relevant time was a member of the same group as the acquiring company and was above it in the group structure. For these purposes:
    • any relevant time means any time between the effective date of the relevant transaction and the date of change of control by virtue of which tax is chargeable, and 
    • a company (A Ltd) is above another company (B Ltd) in a group structure if B Ltd (or another company that is above B Ltd in the group structure) is a 75% subsidiary of A Ltd
  • any person who at any relevant time was a controlling director of the acquiring company or of a company having control of the acquiring company. For these purposes:
    • any relevant time means any time between the effective date of the relevant transaction and the date of change of control by virtue of which tax is chargeable
    • director (in relation to a company) has the meaning given by section 67(1) Income Tax (Earnings and Pensions) Act 2003 and includes any person falling within section 452(1) Corporation Tax Act 2010
    • controlling director (in relation to a company) means a director of the company who has control of the company in accordance with sections 450 and 451 Corporation Tax Act 2010.

To enable such a recovery, a notice must be served on the person from whom the tax is to be recovered.

LTTA/7070 Group relief: Withdrawal: Recovery from other persons

(paragraph 14 Schedule 16)

(paragraph 9 schedule 17)

To enable such a recovery, a notice must be served on the person from whom the tax is to be recovered. The notice:

  • requires the unpaid amount of tax to be paid within 30 days of the service of the notice
  • must be served before the end of the period of 3 years beginning with the date on which the tax was finally determined
  • must state the amount of tax to be paid by the person on whom it is served
  • is to be treated as if it were an assessment and the tax was due from the person on whom it was served
  • has effect for recovery of the tax and any interest on the unpaid tax and also for the purposes of appeals.

When the person on whom a notice was served has paid the tax (and interest), that person is legally entitled to recover the amount they paid from the acquiring company (as buyer).