HMRC recently clarified how it applies the anti-avoidance rule in the context of intra-group asset transfers following corporate acquisitions.
Such transactions are relatively common in the property arena because of the Stamp Duty Land Tax (SDLT) saving involved.
The legislation provides for a number of restrictions on the availability of group relief in SDLT transactions.
One of the restrictions is that group relief is not available if the transaction is not effected for bona fide commercial reasons or the transaction forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax ("bona fide test"). "Tax" includes SDLT, stamp duty, income tax, corporation tax and capital gains tax.
HMRC has issued guidance in the form of a list of transactions where group relief would not be denied, which are set out in the HMRC SDLT manual at paragraph 23040. This list provides examples of where, although a tax advantage might be obtained by the purchaser's group, SDLT group relief will not be denied subject to the overriding caveat that "the transactions do not form part of any larger scheme or arrangement which might have tax consequences".
As well as the restriction mentioned above, it is also necessary to consider whether the steps taken fall into the targeted anti-avoidance provisions of sections 75A-75C Finance Act 2003. HMRC seems to accept that deciding to sell shares rather than land so as to pay less tax or SDLT represents a straightforward legislative choice and is not, of itself, objectionable in its guidance on the General Anti-Abuse Rule.
Further HMRC guidance
HMRC Stamp Taxes has now confirmed the following, subject to the overriding caveat that the presence of steps in addition to those described below may indicate, when taken together, that there are arrangements of which the main purpose or one of the main purposes is avoidance of tax:
- A business may choose to acquire a property-owning company as opposed to acquiring the property from that company. The purchaser may, after acquiring the company, transfer the property out of the company acquired and into a different company in the purchasing group. HMRC does not regard that of itself, and subject to the list of transactions mentioned above, as resulting in the avoidance of tax such that the bona fide test is not met, even if the acquisition of the property-owning company and the subsequent intra-group transfer of the property formed part of the same arrangements.
- The purchaser may, after acquiring the company and transferring the property intra-group, liquidate wind-up or strike-off the company acquired. HMRC does not regard that of itself as resulting in, or being evidence of, the avoidance of tax such that the bona fide test is not met, even if the liquidation, winding-up or striking-off formed part of the same arrangements that also included the acquisition and the intra-group transfer.
- In the scenarios described above, the bona fide test analysis would be the same even if the purchaser only became a member of a group for SDLT purposes as a result of the acquisition of the property-owning company.
Since HMRC announced that it was looking at the whole area of acquiring property companies, there has been a degree of uncertainty in this area. The announcement by HMRC clarifies matters, and should hopefully enable transactions to proceed with greater certainty.