HMRC has published guidance about the Stamp Duty Land Tax (SDLT) treatment of de-enveloping transactions. This covers, in particular, the SDLT result of liquidating a company and removing a property.

The guidance has been published because some companies may now seek to ‘de-envelope’ a property for a number of reasons, including taking themselves and the persons to whom they distribute the property outside the scope of the Annual Tax on Enveloped Dwellings. Such de-enveloping may occur by a capital distribution to the shareholders following the liquidation of the company.

The tax consequences of de-enveloping will depend on whether there is any consideration given by the shareholders for the transfer of the property.

In HMRC’s view, there are two situations where HMRC will not consider there to be any consideration given.

The first is where the company is debt free, its only asset is the property and there are no liabilities (other than issued share capital). In such a situation the shareholders have given no consideration directly or indirectly for the property and therefore there is no SDLT liability.

The second of these situations will be where there is debt but this debt is owed solely to the shareholder. This is a situation that HMRC has given its views on before and HMRC confirm that the guidance in SDLT Technical News issue 5 (August 2007) still applies.

However, where there is a third party (non-shareholder) loan secured on the property when the company is liquidated, the transfer of the property by the company on a distribution will attract SDLT under paragraphs 1 and 8 of Schedule 4 FA 2003 where there is an assumption by the shareholder(s) of liability for the debt.