STSM042540 - Section 77A 바카라 사이트“ Capital Reduction Demergers 바카라 사이트“ Example Demerger and Stamp Duty Implications 바카라 사이트“ Example Two

Targetco was formed five years ago and is owned by members of the Red Family (50% collectively) and Green Family (50% collectively).

The ownership of Targetco is split as follows:

Red Family (50%):
  1. Tom Red 바카라 사이트“ who holds 20% of the issued shares
  2. Tim Red 바카라 사이트“ who holds 20% of the issued shares
  3. Ted Red 바카라 사이트“ who holds 10% of the issued shares
Green Family (50%):
  1. Tilly Green 바카라 사이트“ who holds 20% of the issued shares
  2. Tess Green 바카라 사이트“ who holds 20% of the issued shares
  3. Thea Green 바카라 사이트“ who holds 10% of the issued shares

The Red and Green families decided to go their separate ways and wish to split the business up between them. They do this by carrying out a capital reduction demerger:

  • Step One 바카라 사이트“ A new holding company is inserted

A new holding company (Acquire Co) acquires 100% of the issued share capital of Targetco, through a share for share exchange. The consideration given by Acquire Co is the issue of new shares in proportion to the six shareholders of Targetco (20/20/10- 20/20/10).

  • Step Two 바카라 사이트“ Targetco distributes assets to Acquire Co

Targetco declares a dividend in specie to Acquire Co of 50% the trade and assets relating to the business.

  • Step Three 바카라 사이트“ Acquire Co reorganizes its share capital

Acquire Co reclassifies its ordinary shares into 바카라 사이트śR ordinary바카라 사이트ť and 바카라 사이트śG ordinary바카라 사이트ť shares. The R shares (held by the Red family members) give rights to 50% of the business and assets and the G shares (held by the Green family members) give rights to the remaining 50%.

  • Step Four 바카라 사이트“ Acquire Co carries out a capital reduction

Acquire Co reduces its share capital. This allows it to make a distribution in specie of its 100% shareholding in Targetco to a new company (Newco). Newco issues shares of equivalent value to the Green family members as consideration. The G shares in Acquireco are cancelled.

  • Final Structure
  • Targetco is owned by Newco, which in turn is owned by the Green family members;
  • Acquire Co is owned by the Red family members.

Stamp Taxes on Shares Implications

Relief under s.77 FA1986 would not be available on Step One, as at the time the instrument was executed to effect it, there were arrangements in place for 바카라 사이트śparticular persons바카라 사이트ť (the Red family members) to gain control of the acquiring company.

This is because s.77A applies to deny relief as at the time of the share for share exchange (Step One) there are arrangements for 바카라 사이트śparticular persons together바카라 사이트ť (the Red family members) to obtain control of the acquiring company (at Step Four).

This analysis is not affected by the changes to s.77A FA1986 made by FA2020 (see STSM042460).

This is because they specify that a 바카라 사이트śperson바카라 사이트ť obtaining control of the acquiring company must have held at least 25% of the issued share capital in the target company at all times during the 바카라 사이트śrelevant period바카라 사이트ť (a period of three years ending immediately before the shares in the acquiring company are issued (or first issued) as consideration for the acquisition of the target company).

Here, neither Tom, Tim nor Ted Red has held at least 25% of the issued share capital in Targetco throughout the 바카라 사이트śrelevant period바카라 사이트ť. Whilst collectively they have held more than 25% of the issued share capital in Targetco, this is not relevant as the changes made in FA2020 only apply to an individual 바카라 사이트śperson바카라 사이트ť who meets the relevant criteria and it is not possible to aggregate the shares held by Tom, Tim and Ted in order to meet the 25% threshold.

Relief under s.75 FA1986 would also not available on Step Four, as the shareholding does not mirror (see STSM042370).