Voluntary liquidation stops SDLT group relief clawback on later sale

The FTT has held that arrangements involving a voluntary liquidation put in place to prevent an SDLT degrouping charge arising on the sale of a subsidiary did not trigger the targeted anti-avoidance provisions in FA 2003 Sch 7 para 2(4A) nor did they trigger the anti-avoidance provisions in s.75A : HC-One No.1 Ltd v HMRC [2026] UKFTT 678. The subsidiary had been set up to combine the group’s various care home businesses into one convenient entity for an ultimate sale outside the group.

The FTT considered that, based on the clear language of the statute, the liquidation which triggered the degrouping was not “tax avoidance” but simply a fiscally attractive option provided by the clear language of the statute. As regards s.75A, the FTT considered that the liquidation and sale of the subsidiary were not “scheme transactions” in connection with the initial intra-group transfers of the properties to a single subsidiary in order to package the businesses for sale.

Background

This case concerns arrangements put in place by BUPA to divest itself of part of its care home business. The arrangements involved unwinding a securitisation structure, transferring the relevant properties from various OpCos to the taxpayer company which had been set up to serve as the sale vehicle and then selling the shares in the taxpayer company. The transfers of the properties from OpCos to HC-One were intra-group and SDLT group relief was claimed. The sale of HC-One occurred less than three years after those intra-group transfers, but immediately prior to the share sale, the parent company of the OpCos was put into a members’ voluntary liquidation such that the OpCos ceased to be members of the same SDLT group as HC-One. It was clear from the advice received on the arrangements as a whole that the purpose of the liquidations was specifically to prevent the SDLT group relief clawback arising.

HMRC issued discovery assessments in relation to the intra-group transfers arguing that that the intra-group transfers formed part of arrangements of which a main purpose was the avoidance of SDLT, such that the targeted anti-avoidance provision in Sch 7 paragraph 2(4A) applied. Secondly and in the alternative, HMRC relied on s.75A, asserting that the intra-group transfers, the liquidation, and the subsequent sale constitute “scheme transactions” which together yield less SDLT than a notional transaction would require.

FTT decision: para 2(4A)

Para 2(4A) provides that group relief is not available if the transaction forms part of arrangements of which the main purpose or one of the main purposes is the avoidance of a liability to SDLT. The taxpayer disputed both limbs of HMRC’s case under para 2(4A). It contends that the arrangements were driven by commercial purposes, including regulatory, operational, and employee-related constraints; and that the liquidation was a genuine liquidation meeting the statutory terms of para 4(4) of Schedule 7 and there was no avoidance.

Para 3 provides for the withdrawal of group relief where the purchaser ceases to be a member of the same group as the seller within a period of three years of the sale. However, para 4(4) excepts from this provision where the purchaser ceases to be a member of the same group as the seller by reason of anything done for the purposes of, or in the course of, winding up the vendor or another company that is above the vendor in the group.

The FTT noted that the hallmark of tax avoidance is that a taxpayer reduces its tax liability without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such a reduction. Where a taxpayer mitigates their tax liability, they must bear the fiscal and commercial consequences associated with the tax benefit. The taxpayer argued that it had merely taken advantage of a fiscally attractive option open to it and had suffered the economic consequences of that liquidation. HMRC argued that para 4(4) should be read as limited to where the group connection is broken inadvertently, for example through an insolvent liquidation, but not in an unconstrained manner which would invite tax avoidance.

The FTT has held that para 4(4) cannot be read in the way contended by HMRC. “It is an unconstrained exclusion. It is not limited to insolvent liquidation or liquidation with a commercial motivation.” Whilst accepting that if Parliament had appreciated that taxpayers might liquidate a vendor company or a company above the vendor in order to preserve a group relief claim which would otherwise be the subject of a clawback, it may well have drafted the provision differently, that was not sufficient to require the FTT to read words into the section.

Therefore, the FTT has held that the effect of winding up the parent company to preserve group relief does not amount to “tax avoidance” and therefore the requirements of para 2(4A) were not met.

However, if the FTT had held that the winding up did amount to tax avoidance it would have held that securing that outcome was one of the taxpayer’s main purposes.

FTT decision: section 75A

Section 75A applies where there are a “number of transactions (including the disposal and acquisition)… involved in connection with the disposal and acquisition” and the sum of SDLT payable on the scheme transactions is less than on a notional land transaction simply effecting the transfer between buyer and seller.

The FTT noted from the jurisprudence on section 75A that the focus is on the transactions by which the relevant interest is disposed of by the vendor and acquired by the purchaser. But the scope of “scheme transactions” is very broad and includes non-land transactions, transactions after the purchaser has acquired the interest and incidental transactions. However, the scope is not limitless and the transactions need to contribute directly or indirectly to the means by which the relevant interest finds its way from the vendor to the purchaser.

Bearing in mind the focus on the vendor to purchaser transaction, the FTT concluded that HMRC’s position could not be upheld. “I accept that the liquidation and subsequent share sale are transactions of a type which conceptually could be capable of meeting the definition of scheme transaction on its terms and in light of the provisions of section 75A(2) and (3). I also accept that the phrase “involved in connection with” is an extremely broad concept. I do not consider that I need to determine whether strictly “involved” broadens or narrows “in connection with” because the composite phrase applies to “the disposal and acquisition” (emphasis added) i.e. the disposal by V and the corresponding acquisition by P”. However, HMRC had focussed their case on the share sale as the final transaction in the scheme, but the FTT concluded that the share sale was not a transaction “involved in connection” with the transaction between the OpCos and HC-One.

“Applying the language used by Falk LJ in Tower One the share sale did not “form part of the series of transactions by which the [chargeable interests] found their way from the [OpCos] to the [Appellant]”. The OpCos to Appellant transactions were involved in connection with the share sale and the liquidation was a transaction also involved in connection with the share sale, the latter being pursuant to (and thereby conditional on) a warranty that BCHGL had been liquidated prior to the contract having been signed. But that is looking the wrong way up the telescope…. The share sale was the means by which the chargeable interest which had been acquired by P was transferred, together with the business operations conducted from those premises to HC-One. That is not the V – P transaction.”

Accordingly, the FTT also rejected HMRC submission that the liquidation and sale were involved in connection with the disposal of the properties from the OpCos to HC-One and that HMRC were entitled to apply the provisions of s.75A to the arrangements.

Comment

The decision is an important one in connection with SDLT group relief, albeit likely to be appealed by HMRC. The lack of any limitations in para 4(4) contrasted with other carefully circumscribed provisions in Schedule 7 providing relief and indicated to the FTT that no such limitations should be read into the provision. As such, simply complying with the provision and suffering the economic and commercial consequences of a voluntary liquidation could not be equated with “tax avoidance” in this context, despite the fact that the voluntary winding up did not take place until earlier the same day as the sale to the external purchaser.