What are the four qualifying conditions for LBTT reconstruction relief under Schedule 11 paragraph 3?

The four conditions are: the acquiring company must take over all or part of the target company's undertaking under a reconstruction scheme; consideration must include non-redeemable shares issued to all target shareholders; shareholdings must be mirrored proportionally across both companies; and the acquisition must have genuine commercial reasons with no main purpose of LBTT avoidance.

Why must the share consideration for LBTT reconstruction relief consist of non-redeemable shares?

Non-redeemable shares are required to prevent the acquiring company from buying back the shares shortly after issue, which would effectively convert the reconstruction into a cash sale. This requirement ensures the transaction represents a genuine restructuring rather than a disguised disposal of assets designed to circumvent LBTT obligations.

What is the mirror shareholding requirement for LBTT reconstruction relief?

After the acquisition, each shareholder of either company must also be a shareholder of the other company. The proportion of shares held by each shareholder in one company must be the same, or as nearly as possible the same, as their proportion in the other company, ensuring the ownership structure is mirrored across both entities.

Can Revenue Scotland deny LBTT reconstruction relief even if the structural conditions are met?

Yes. The fourth condition is a dual anti-avoidance test requiring the acquisition to be carried out for genuine commercial reasons. If the transaction forms part of arrangements where a main purpose, or one of the main purposes, is LBTT avoidance, Revenue Scotland can deny the relief regardless of whether the other three conditions are satisfied.

Land and Buildings Transaction Tax (Scotland) Act 2013 Schedule 11 paragraph 3

Qualifying conditions for reconstruction relief

Paragraph 3 of Schedule 11 sets out the four conditions that must all be met for a company reconstruction transaction to qualify for LBTT relief.

A company (the acquiring company) must acquire all or part of the undertaking of another company (the target company) under a scheme of reconstruction.
The consideration must consist wholly or partly of non-redeemable shares in the acquiring company, issued to all shareholders of the target company.
After the acquisition, each shareholder must hold shares in both companies in the same, or as nearly as possible the same, proportions.
The acquisition must be carried out for genuine commercial reasons and must not form part of arrangements whose main purpose (or one of whose main purposes) is the avoidance of LBTT.

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