Stamp duty: acquisition of a target company's share capital – examples needed

Section 137, Finance Act 2016 introduced new s 77A, Finance Act 1986 which restricts the existing stamp duty share-for-share relief rules in ‘takeover’ cases where HMRC perceives stamp duty is being avoided.

The new section was introduced to prevent the avoidance of stamp duty on takeovers, although the impact is much wider. The new rules will impact negatively on many genuine reconstructions.

An example is demergers where two or more shareholders in a company wish to separate the trades or businesses of the existing company and to carry on the trades or businesses through separate companies. Part of the process of demerging naturally results in one of the shareholders acquiring control of a new holding company, inserted by a share exchange transaction which will now, under s77A FA 1986, carry a charge to stamp duty. While there may technically be a change in control, in substance a takeover has not taken place as the same shareholders are carrying on the same trades or businesses, simply in separate companies.

We would like to hear from members who know of situations where the anti-avoidance provision will negatively affect commercial demergers. Post a comment below.