STSM042530 - Section 77A 바카라 사이트“ Capital Reduction Demergers 바카라 사이트“ Example Demerger and Stamp Duty Implications 바카라 사이트“ Example One

Scenario

Targetco was formed five years ago, and has three shareholders who have held their shares in the following proportions since its inception:

1. Priti, who holds 30% of the issued shares;

2. Jay, who holds 30% of the issued shares; and

3. Sienna, who holds 40% of the issued shares.

Targetco manufactures widgets and also holds investment properties. The shareholders can바카라 사이트™t agree on the future of the business so they decide that Sienna will concentrate on the property business with Priti and Jay retaining the widget business.

They do this by undertaking a capital reduction demerger:

바카라 사이트˘ 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 three shareholders of Targetco (30/30/40).

바카라 사이트˘ Step Two 바카라 사이트“ Targetco distributes investment property assets to Acquire Co

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

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

Acquire Co reclassifies its ordinary shares into 바카라 사이트śP ordinary바카라 사이트ť and 바카라 사이트śW ordinary바카라 사이트ť shares. The P shares (held by Sienna) give rights to the property business and the W shares (held by Jay and Priti) give rights to the widget business.

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

Acquire Co reduces its share capital. This allows it to then make a distribution in specie of its 100% shareholding in Targetco (which carries on the widget business) to a new company (Newco). Newco issues shares of equivalent value to Jay and Priti as consideration. The W shares in Acquireco are cancelled.

바카라 사이트˘ Final Structure
  • Targetco, which carries out the widget business, is owned by Newco, which in turn is owned by Jay (50%) and Priti (50%);
  • Acquire Co, which carries out the investment property business is 100% owned by Sienna.

Stamp Taxes on Shares Implications

The relevant instrument at Step One is executed on or after 22 July 2020.

Following the changes to s.77A FA1986 made by FA2020, s.77 relief will now be available on Step One as the 바카라 사이트śparticular person바카라 사이트ť acquiring control of the acquiring company is Sienna, and Sienna has held more than 25% of the issued share capital in target company during the 바카라 사이트śrelevant period바카라 사이트ť, as the shares that Sienna held (being 40% of the shares in Targetco) had been held for more than three years when the acquiring company issued shares in itself as consideration for the acquisition of Targetco.

Separately relief under s.75 FA1986 is not available on Step Four, as the shareholding does not mirror (see STSM042370).

The relevant instrument at Step One is executed prior to 22 July 2020.

Previously, two Stamp Duty charges would have arisen on these transactions.

Relief under s.77 FA1986 would not have been available on Step One, as at the time the instrument was executed to effect it there were arrangements in place for a person (Sienna) to gain control of the acquiring company.

Relief under s.75 FA1986 would also not have been available on Step Four, as the shareholding does not mirror.