What is the definition of a 75% subsidiary for LBTT group relief purposes?

Under section 44 of Schedule 10 of the Land and Buildings Transaction Tax (Scotland) Act 2013, a company is a 75% subsidiary of another only if the parent beneficially owns at least 75% of ordinary share capital, is entitled to at least 75% of distributable profits, and is entitled to at least 75% of assets available on winding up. All three tests must be met simultaneously.

What are the three ownership tests for a 75% subsidiary under LBTT?

The three tests require the parent company to beneficially own at least 75% of ordinary share capital, be beneficially entitled to at least 75% of any profits available for distribution to equity holders, and be beneficially entitled to at least 75% of assets that would be distributed to equity holders on a winding up of the subsidiary.

Can group relief apply if only two of the three 75% subsidiary tests are satisfied?

No. All three tests must be satisfied simultaneously. If a parent company owns 75% or more of the shares but is entitled to less than 75% of distributable profits — for instance because preference shares give other investors disproportionate profit rights — the subsidiary test fails and LBTT group relief is unavailable for the transaction.

What does beneficial ownership mean in the context of the 75% subsidiary test?

Beneficial ownership means the parent company must be the true economic owner of the shares, not merely the registered holder on behalf of another person. This ensures that the parent has a genuine economic stake in the subsidiary's share capital, profits, and assets, rather than holding shares as a nominee or agent.

Land and Buildings Transaction Tax (Scotland) Act 2013 section 44

Definition of 75% subsidiary

Section 44 of Schedule 10 defines the conditions that must all be met for one company to be treated as a 75% subsidiary of another company for the purposes of group relief from LBTT.

A company (A) is a 75% subsidiary of another company (B) only if all three ownership tests are satisfied simultaneously.
Company B must beneficially own at least 75% of the ordinary share capital of Company A.
Company B must be beneficially entitled to at least 75% of any profits available for distribution to Company A's equity holders.
Company B must be beneficially entitled to at least 75% of any assets that would be available for distribution to Company A's equity holders if Company A were wound up.

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