Group Relief for Stamp Duty Land Tax: Limited Liability Partnerships
Stamp Duty Land Tax – A change in HMRC’s view of the law
Background
Where UK real estate is transferred between members of the same group, and provided certain conditions are met, the tax legislation provides a relief from stamp duty land tax (SDLT).
Companies are treated as members of the same group for SDLT purposes if one company is a 75% subsidiary of another or if both are 75% subsidiaries of a third company. Broadly, the 75% relationship refers to the beneficial ownership of a company’s issued ordinary share capital.
A ‘company’ for SDLT group relief purposes is defined as a ‘body corporate’ and includes foreign companies.
Change in View
Until now, HMRC has held the view that a limited liability partnership (LLP) created under the Limited Liability Partnership Act 2000 was not a body corporate and should be ‘looked through’ when considering whether a group relationship existed. The effect of this was that an LLP could not form part of a group for SDLT purposes.
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 a subsidiary of other companies. This also means that any subsidiaries of the LLP cannot be grouped with companies that are 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, 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.
English partnerships, Scottish partnerships and Foreign partnerships
HMRC’s views on group relief from stamp duty for LLPs, and the stamp duty rules for English general and limited partnerships, Scottish partnerships and foreign partnership, which are also covered in the announcement, remain unchanged.
Comment
Although the announcement confirms that HMRC will not revisit claims for group relief already submitted on the basis that an LLP is transparent for group relief purposes, the change may also mean that certain SDLT avoidance techniques, which utilised the look through status of an LLP, are no longer available.
Please contact Simon Newsham on +44 (0) 20 740 8820 or e-mail him at simonnewsham@newshams.com if you wish to discuss the implications of this change.
