Two reliefs cause most of the confusion: group relief and sub-sale relief. Group relief can remove SDLT on a transfer between companies in the same qualifying corporate group. Sub-sale relief can remove a charge on an intermediate buyer where the property is sold on before completion. They solve different problems, and they cannot simply be combined to make a connected company acquisition SDLT free.
This article explains how SDLT group relief and sub-sale relief work, when they can apply in the same wider arrangement, how they interact with incorporation relief and the partnership route, where HMRC is likely to challenge a claim, and what evidence should be in place before the SDLT return is filed. It covers SDLT in England and Northern Ireland. It does not cover Scottish LBTT, Welsh LTT, or the residential company surcharge rules in detail.
Key Takeaways
Why Buying through a Company does not Automatically Reduce SDLT?
A common starting assumption is that buying property through a company should reduce SDLT. That is not correct. SDLT is charged on the land transaction, not on the business reason for using a company. A company buying a commercial property normally pays SDLT at the same non-residential rates as any other purchaser. A company buying residential property can face additional charges, so the corporate ownership can increase the SDLT cost rather than reduce it.
The relief must match the transaction. If the transaction is a transfer between group companies, group relief may be relevant. If the transaction is a sale-on before completion, the pre-completion transaction rules may be relevant. If the transaction is simply a company buying from an unconnected seller, neither relief applies just because the buyer is a company.
That is why corporate SDLT advice starts by mapping the transaction chain. Who contracts with whom? Who completes? Does the property pass from a third-party seller to the final buyer, or between two group companies? Is there a sub-sale before completion, or a later transfer after completion? Once those steps are clear, the relief analysis becomes much more manageable.
What Does SDLT Group Relief Do?
Group relief is designed for genuine intra-group movements of land and buildings. In simple terms, it can remove SDLT where one company transfers property to another company in the same corporate group. It is most often used when a group reorganises assets, moves a property into a different SPV, separates trading and property activities, or prepares a structure for funding or operational reasons.
The legal basis is Part 1 of Schedule 7 to the Finance Act 2003 (the “Act”). The core rule is that a land transaction is exempt from SDLT if the seller and the buyer are companies and, at the effective date of the transaction, they are members of the same group. HMRC summarises the relief at SDLTM23010 as applying to land and building transfers within a group where the conditions are met.
For this purpose, companies are in the same group where one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company. The 75% test is not just a share-counting exercise. The parent company must have at least 75% of the ordinary share capital and must also be entitled to at least 75% of the economic benefits, meaning profits available for distribution and assets available on a winding-up.
This is where some apparently simple cases become technical. A group chart may show that a parent owns 75% or more of a subsidiary, but the economic rights may tell a different story. Preference shares, special dividend rights, ratchets, minority protections or a shareholders' agreement can alter who is entitled to profits or capital. If those rights mean the parent does not truly hold 75% of the economic interest, group relief can fail even though the headline shareholding looks sufficient.
The test is applied at the effective date of the transaction, usually completion unless the transaction is substantially performed earlier. A group relationship that existed during negotiation, or that is planned to exist after a later step, is not enough. The companies must be members of the same qualifying group at the relevant SDLT date.
When can Group Relief be Refused or Withdrawn?
A qualifying group relationship is only the first part of the analysis. Group relief can still be refused where the wider arrangements show that the conditions are not genuinely met or that the transaction is not a straightforward commercial group transfer.
The main practical restrictions are these. Relief is not available where arrangements exist for the buyer and seller to cease to be in the same group because the buyer will leave the group. Relief can also be denied where the consideration is provided from outside the group in a way that falls within the statutory restrictions. Most importantly, the transaction must be carried out for bona fide commercial reasons and must not form part of arrangements where the main purpose, or one of the main purposes, is the avoidance of tax.
That does not mean every tax-efficient group reorganisation is automatically suspect. HMRC guidance at SDLTM23040 gives examples of commercial group transfers where relief should not be denied simply because a tax advantage may arise. For example, transferring property so that commercially generated rental income can be matched with losses, or moving property before a share sale for genuine commercial reasons, may still be within the intended scope of the relief. The point is that the commercial rationale must be real and capable of being evidenced.
Even where group relief is validly claimed at completion, it can be withdrawn later. The most common withdrawal risk is the three-year rule. When the purchasing company leaves the group within three years while still holding the property, or an interest derived from it, the relief may be clawed back. The effect is that SDLT becomes chargeable as if the original transfer had taken place at market value, and a further return is required.
This is why group relief should not be reviewed only on the day of transfer. A planned sale of the SPV, a refinancing, an external investor coming in, a share issue or a wider group restructure can all affect the clawback analysis. If the property-owning company is being sold, it will usually require consideration of whether any past SDLT group relief could be withdrawn after completion.
How does Sub-Sale Relief Work?
Sub-sale relief deals with a different problem. It applies where a buyer contracts to buy property but, before completing that purchase, sells on the property or transfers rights to another person. This is generally referred to as sub-sale relief, although the current rules are now the pre-completion transaction rules in Section 45 and Schedule 2A to the Act.
Consider an example where V Ltd. agrees to sell a property to A Ltd. Before A Ltd. completes, A Ltd. agrees to sell the same property to C Ltd. The transactions are completed together so that C Ltd. ends up with the property. Without relief, A Ltd. could be treated as having acquired an interest under its contract and C Ltd. would also be charged on its acquisition. Sub-sale relief is intended to remove the unnecessary SDLT charge on A Ltd., the intermediate buyer, where the statutory conditions are met.
The important point is that the relief belongs to the intermediate buyer. It does not make the ultimate buyer's acquisition tax-free. C Ltd. still acquires a chargeable interest and must calculate SDLT on its own acquisition. HMRC explains this at SDLTM21570, which confirms that relief for the transferor is claimed where the pre-completion transaction is an assignment of rights or a sub-sale and the conditions are met.
For a sub-sale, the original contract and the sub-sale contract must be completed or substantially performed at the same time and in connection with each other. If A completes its purchase first and only later transfers the property to C Ltd., that is no longer a pre-completion sub-sale. A Ltd. has acquired the property, and any later transfer to C Ltd. must be considered as a separate land transaction.
Like group relief, sub-sale relief must be claimed. It is not applied automatically by HMRC. The SDLT return should show the correct transaction and the relief being claimed, supported by the contract, sub-sale agreement, completion statement and an analysis of why the statutory conditions are met.
Can Group Relief & Sub-Sale Relief both Apply?
They can both appear in the same overall set of arrangements, but they do not exempt the same transaction twice. This is the point that needs to be made clearly in advice and in the SDLT file.
Group relief applies to a transfer between group companies. Sub-sale relief applies to the intermediate buyer in a pre-completion transaction. The two reliefs therefore answer different questions. The correct approach is to identify each land transaction in the chain and ask which relief, if any, applies to that transaction.
For example,
Consider a holding company, Holdco Ltd, which contracts to buy a property from an unconnected seller and, before completion, sub-sells to its wholly owned SPV. Holdco Ltd may be able to claim sub-sale relief because it is the intermediate buyer and it has sold on before completion. The SPV, however, is acquiring the property from the third-party seller. That acquisition is not a transfer between group companies, so group relief does not exempt the SPV's SDLT charge. The SPV normally pays SDLT on the acquisition.
This is why the question 'can we claim both?' needs care. A group can use sub-sale relief on one step and group relief on another step if the facts support that analysis. What it cannot usually do is use a sub-sale into a group SPV and then treat the ultimate acquisition as tax-free merely because the parties are connected.
Structure | What happens for SDLT | Likely relief position |
|---|---|---|
Holdco Ltd. contracts with third-party sellers, then sub-sells to SPV before completion | Holdco Ltd. is the intermediate buyer. SPV is the ultimate purchaser. | Sub-sale relief may remove Holdco Ltd.’s charge. SPV still calculates SDLT on its acquisition. |
Holdco Ltd. buys from third-party seller, then later transfers property to SPV | Holdco Ltd. has completed its own acquisition from the seller. The later transfer is a separate intra-group transfer. | Holdco Ltd.’s purchase is chargeable. The Holdco-to-SPV transfer may qualify for group relief. |
A Ltd. already owns property and transfers it to B Ltd. in the same 75% group | There is an intra-group transfer only. | Group relief may reduce SDLT to nil, subject to restrictions and clawback. Sub-sale relief is not relevant. |
A Ltd. Sub-sells to connected SPV for a low price | The companies are connected and the sub-sale price is below the original contract price. | Sub-sale relief may protect A Ltd., but minimum consideration rules can increase SPV 's chargeable consideration so that the low price does not reduce SDLT. |
How Does Incorporation Fit with these SDLT Reliefs?
Most mistakes in this area come from treating all four ideas as if they are alternative names for the same SDLT relief. They are not.
First, Capital Gains Tax (CGT) incorporation relief is not an SDLT relief. Relief under Section 162 of the Taxation of Chargeable Gains Act 1992 can defer CGT when a business is transferred to a company in exchange for shares, if the conditions are met. That does not answer the SDLT question. A property business can have a CGT incorporation relief issue and still have a separate SDLT issue.
Second, the SDLT partnership route is not group relief. Where property is held in a genuine partnership and is transferred to a company, the SDLT analysis is usually under the partnership rules in Schedule 15 to the Act. Those rules can reduce the chargeable consideration, sometimes to nil, where the economic ownership before and after the transfer is sufficiently aligned. The calculation is fact-specific and depends on the partners, their shares, connected persons and the ownership of the company receiving the property.
Third, Section 65 of the Act is often misunderstood. It is a specific SDLT relief for the incorporation of a limited liability partnership. It is not the usual route for an ordinary property partnership transferring properties to a limited company. That ordinary partnership-to-company situation usually requires Schedule 15 analysis, not a simple group relief claim and not a simple sub-sale relief claim.
Fourth, group relief may become relevant after incorporation, but only for a later corporate group transfer. For example, if a genuine property partnership incorporates into Newco Ltd and Newco Ltd later transfers a property to Propco Ltd in the same qualifying group, the later Newco Ltd-to-Propco Ltd transfer may need a group relief analysis. That does not mean group relief applied to the original partnership-to-company incorporation. They are different steps.
Sub-sale relief is also usually a poor fit for partnership incorporation. Sub-sale relief is about an intermediate buyer selling on before completing its own acquisition. A property partnership incorporating a property business is usually transferring property it already holds. That is a Schedule 15 or wider incorporation analysis, not a pre-completion sub-sale analysis.
Practical example
Assume Anna and Ben run a genuine property letting business as a partnership. The partnership owns a commercial property worth £2.5 million. They want to incorporate the business into Newco Ltd, with Anna and Ben owning Newco Ltd in the same proportions as they owned the partnership business.
The SDLT question on the transfer from the partnership to Newco Ltd is not group relief, because the transferor is not a company in the same corporate group as Newco Ltd. It is not sub-sale relief, because the partnership is not an intermediate buyer selling on before completion. The SDLT analysis is under the partnership provisions in Schedule 15. Depending on the exact ownership proportions and connected person rules, the chargeable consideration may be reduced, possibly to nil.
Now assume Newco Ltd later creates a group and transfers the same property to Propco Ltd, a wholly owned subsidiary. That later transfer is a separate transaction. It may qualify for group relief, provided the group relief conditions are met and no restriction or clawback applies. In this sense, the partnership route and group relief can both appear in the same overall restructuring history, but they apply to different transfers.
How will HMRC look at connected-party structures?
The two areas HMRC is most likely to test are the consideration and the purpose of the arrangements. This is especially true where the parties are connected, the structure was set up shortly before completion, or the SDLT outcome is much lower than a straightforward acquisition would have produced.
For sub-sales, the key protection for HMRC is the minimum consideration rule. HMRC guidance at SDLTM21560 explains that the rule can apply where the ultimate purchaser is connected with, or not acting at arm's length from, the transferor or an earlier transferor. Where it applies, the ultimate purchaser's chargeable consideration can be increased to a minimum amount, often based on the original contract price. In practical terms, a connected sub-sale at £100,000 will not normally reduce the SDLT base if the original contract price was £2 million.
For group relief, HMRC will look at whether the transaction was carried out for genuine commercial reasons and whether tax avoidance was a main purpose. The analysis should not be left to a one-line statement in the board minutes. The file should explain why the property is being moved, what commercial outcome the group is seeking, how the structure fits that purpose, and why the relief claim reflects the real transaction.
The wider SDLT anti-avoidance rule in Section 75A of the Act also needs to be considered where a series of steps produces less SDLT than a direct acquisition would have done. The Supreme Court decision in Project Blue Ltd v HMRC [2018] UKSC 30 is directly relevant here. The case involved a structure using sub-sale relief and alternative finance relief. The Supreme Court held that Section 75A of the Act could apply so that SDLT was charged by reference to a notional transaction, despite the way the individual steps had been arranged.
The practical lesson from Project Blue is not that every pre-completion transaction is ineffective. It is that SDLT reliefs should not be analysed in isolation from the wider arrangement. If the commercial result is a property acquisition and the structure materially reduces SDLT compared with a direct transaction, the Section 75A analysis should be addressed before the return is filed.
Worked Example
Assume a commercial property in England is worth £2,500,000. At current non-residential SDLT rates, the SDLT on a direct purchase is £114,500.
The table below shows why the structure matters. The same property value can produce very different outcomes depending on which company contracts, which company completes and whether the transfer is intra-group or from a third-party seller.
Scenario | Result | SDLT Position |
|---|---|---|
1. SPV buys directly from a third-party seller | The SPV acquires the property from an unconnected seller. | No group or sub-sale relief. SDLT is £114,500. |
2. Holdco Ltd contracts with the seller and sub-sells to SPV before completion | Holdco Ltd is relieved as the intermediate buyer if the sub-sale relief conditions are met. The SPV is the final buyer. | Holdco Ltd may have no SDLT. The SPV still pays SDLT of £114,500, subject to the usual rules. |
3. Holdco Ltd buys first and later transfers the property to SPV | Holdco Ltd has already acquired the property. The later Holdco to SPV transfer is a separate intra-group transfer. | Holdco Ltd pays SDLT of £114,500 on the third-party purchase. The later transfer may be relieved by group relief if the conditions are met. |
4. Existing group company transfers the property to another group company | The seller and buyer are both in the same qualifying corporate group at the effective date. | Group relief may reduce SDLT to nil, provided the restrictions do not apply and the relief is not later withdrawn. |
5. Group relief is claimed but the buying company is sold out of the group within three years | The clawback rules must be reviewed because the purchaser has left the group while holding the property. | The original relief may be withdrawn and SDLT may become payable by reference to market value. |
These figures are illustrative. The correct SDLT treatment depends on the precise contracts, completion mechanics, property type, consideration, group structure and anti-avoidance analysis.
What Should a Defensible Relief Claim Include?
A good SDLT relief file should identify the transaction, the relief claimed, the statutory conditions, the commercial purpose and the reason the anti-avoidance rules do not displace the claim.
For group relief, the file should include the group structure at the effective date, the share registers, any shareholders' agreement or constitutional documents affecting economic rights, board minutes explaining the commercial rationale, the transfer document, completion statement and the SDLT calculation. Where the group structure is more complex, the analysis should show how the 75% test is met through each link in the chain.
For sub-sale relief, the file should include the original contract, the sub-sale or transfer of rights documentation, evidence that completion or substantial performance happened at the same time and in connection with the original contract, the consideration analysis and the SDLT return position for the intermediate and ultimate parties.
For both reliefs, the adviser should record the restrictions and anti-avoidance points considered. That does not need to be written in unnecessarily complex language, but it should be clear. HMRC is more likely to challenge a claim where the return says 'relief claimed' but the working papers do not explain why the relief applies.
Common Mistakes to Avoid
- The most common error is treating group relief and sub-sale relief as if they are interchangeable. They are not. Group relief is about who the buyer and seller are in an intra-group transfer. Sub-sale relief is about timing: the intermediate buyer must sell on or transfer rights before completing its own purchase.
- A second error is assuming that a sub-sale to a group SPV removes the final SDLT charge. It normally does not. The sub-sale may relieve the intermediate buyer, but the SPV is still acquiring the property and must calculate SDLT on that acquisition. Where the sub-sale is between connected parties, the minimum consideration rule may prevent any reduction in the SDLT base.
- A third error is failing to consider the three-year clawback period for group relief. A transfer may be tax-free on day one but become chargeable later if the purchaser leaves the group while still holding the property. This is particularly important where the group is moving property into an SPV that may later be sold.
- A fourth error is relying on a group chart without checking economic rights. The 75% group test is not satisfied merely because a chart looks tidy. The share rights and any commercial agreements must be reviewed so that the ordinary share capital, profits and winding-up tests are all met.
- Finally, leaving the anti-avoidance analysis until HMRC asks questions should be avoided. If the transaction has genuine commercial reasons, those reasons should be recorded clearly at the time. If the structure produces a lower SDLT result than a direct acquisition, Section 75A should be considered and documented.
Frequently Asked Questions
No. A company does not get a lower SDLT rate simply because it is a company. Any SDLT saving depends on a specific relief applying to the actual transaction.
A relief for transfers of land or buildings between companies in the same qualifying corporate group. In broad terms, the companies must be in the same 75% group at the effective date, and the transaction must satisfy the commercial and anti-avoidance conditions.
Sub-sale relief is part of the pre-completion transaction rules. It can relieve the intermediate buyer where that buyer sells on the property, or transfers rights, before completing its own purchase and the statutory conditions are met.
Not on the same SDLT charge. The reliefs apply to different transactions. A wider arrangement may include both, but the analysis must identify which relief applies to which step.
They can be relevant in the same wider restructuring, but not as one combined relief. CGT incorporation relief deals with capital gains tax. The SDLT partnership route is usually Schedule 15. Group relief may apply to a later transfer between companies in the same group. Each step must be analysed separately.
Usually no. The intermediate buyer may be relieved, but the final group company is still acquiring the property. It must calculate SDLT on its acquisition and connected-party minimum consideration rules may apply.
Group relief can be withdrawn if the purchasing company leaves the group within three years while still holding the property or an interest derived from it.
Where the values are material or the structure involves connected companies, it is sensible to obtain advice before completion. It is much easier to correct a structure before the return is filed than to defend a weak relief claim after HMRC opens an enquiry.
Where this leaves you
Group relief and sub-sale relief are useful SDLT reliefs, but they are not shortcuts. Group relief is concerned with transfers within a qualifying corporate group. Sub-sale relief is concerned with an intermediate buyer selling on before completion. The question is not whether both phrases appear in the transaction papers; it is which relief applies to which legal step.
If the structure is correct, the relief can remove a significant SDLT charge. If the structure is misunderstood, the result can be a denied claim, a clawback charge, interest and penalties. The safest approach is to map the transaction before completion, calculate the SDLT under each possible route and document the basis for the relief before the return is filed.
How UKPA Can Help?
At UK Property Accountants, we advise on SDLT group relief, sub-sale relief and company property structures. Our work can include reviewing the transaction chain, checking whether the relief conditions are met, preparing SDLT calculations and producing a written tax analysis for your solicitor, finance team or internal file.
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