New stamp duty anti-avoidance provision

New stamp duty anti-avoidance provision

Finance Bill changes tabled introduce a new condition restricting share-for-share stamp duty relief (under FA 1986 s 77) in connection with takeovers

Associate Partner, Head of Stamp Taxes

KPMG LLP (UK)

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New amendments to the Finance Bill have been tabled which will introduce a new condition, backdated to 29 June 2016, restricting claims for share-for-share stamp duty relief where there are ‘disqualifying arrangements’ in existence at the time the instrument for the transfer of a target company’s share capital is executed.

A summary of this amendment, which can be found here – (from page 36) is detailed below.

Under the current legislation, share-for-share relief (under FA 1986 s 77) gives a full exemption from stamp duty on the transfer of shares of a company (the target company) to another company (the acquiring company) in exchange for the issue of shares in the acquiring company to the shareholders of the target company.

The tabled amendment, which will take effect from 29 June 2016, introduces a new condition which restricts the availability of the relief where there are ‘disqualifying arrangements’ in existence at the time of the instrument transferring the shares to the acquiring company.

A ‘disqualifying arrangement’ is one which it is reasonable to assume that the purpose, or one of the purposes of which, is to secure that a particular person(s) obtain control of the acquiring company. However, it does not include arrangements for the issue of shares in the acquiring company forming part of the consideration for the share-for-share relief or ‘relevant merger arrangements’.

‘Relevant merger arrangements’ refer to a subsequent share-for-share exchange between the acquiring company and shareholders of another company, provided the conditions for relief are met in relation to that exchange.

The explanatory note for this amendment, which can be found here, confirms that the condition is being introduced to ensure that only ‘genuine reconstructions’ of companies, where there is no real change of ownership of the target company, benefit from the relief. The new changes are not targeted at Initial Public Offerings (IPO), as IPOs do not usually result in takeovers.

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