The problem.
A HMO company faced an HMRC assessment for Stamp Duty Land Tax following an intra-group restructuring. The company had transferred the freehold of six residential properties into a wholly owned subsidiary at its mortgage lender’s direction, the lender having required the freeholds to be held within a ring-fenced special purpose vehicle as a condition of its financing. This is a usual procedure suggested by many mortgage providers for HMOs recently and can cause a confusion in terms of tax aspects. The subsidiary then granted long leases of all six properties back to the parent so that the parent could continue operating them. This was necessary as many of the tenant agreements, planning permissions etc. was already between the parent co, and changing them back to the SPV subsidiary could have caused significant delays and costs.
Unfortunately, HMRC issued an assessment on the leaseback, treating the transaction as giving rise to a charge. With tax of £42,500 in question on each property, the exposure across all six transactions was £255,000. The assessment threatened both a substantial and unexpected tax bill and a delay to registration of the leasehold titles.
Our solution.
We prepared a detailed written dispute setting out the factual background, the commercial rationale and the legal basis for relief. We demonstrated that all four statutory conditions for SDLT group relief under Schedule 7 to the Finance Act 2003 were met, that the leaseback was driven by genuine and independently verifiable commercial necessity rather than any tax purpose, and that the arrangement was distinguishable from the avoidance cases on which HMRC might otherwise rely.
We also addressed the land exchange provisions and advanced an alternative argument that no chargeable consideration had in fact passed, ensuring the company’s position was robust on every front. Following our representations, HMRC accepted the group relief claim and the entire tax liability was removed.