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Finance Bill 2020 – The good and the bad

26th September 2019

Finance Bill 2020 – The good and the bad

Following consultation, next year’s Finance Bill will feature two key changes, and if business find themselves affected, they need to act now.

Higgs & Sons’ Jade Edgar, who for a decade worked at HMRC, said there is a only a very short window of opportunity for businesses to put plans in place.

Here Jade looks at two key changes following a consultation on the Stamp Duty (SD) and Stamp Duty Reserve Tax (SDRT) consideration rules.

First, the good news.

Avoiding double charge on partition demergers

Following concerns raised, existing legislation is to be amended to remove the double SD charge which typically arises on capital reduction partition demergers.

Due to the wide-ranging anti-avoidance provision under section 77A of the Finance Act 1986, demergers which result in a change of ownership of the acquiring company are often hit with a double charge to SD (arising on both the acquisition of the target company and the acquiring company).

The new draft legislation will limit the scope of s77A and will prevent s77A applying where a person has held 25% of the issued share capital of the target company throughout the three-year period ending with the initial first stage share for share exchange.

This change is to have effect for instruments of transfer executed on or after the date on which the Finance Bill 2020 obtains Royal Assent.

Next, the bad news.

Deemed market value rule

In an attempt to tackle what HMRC consider to be contrived arrangements, draft legislation has now been published for inclusion in the Finance Bill 2020 which will apply a deemed ‘market value’ rule to transfers of unlisted shares and securities to connected companies where certain conditions are met.

The market value rule will only apply where the consideration for the transfer is wholly or partly an issue of shares by the purchaser and will not apply to capital contributions or distributions, including distributions in specie of unlisted shares. Where the conditions are met, the value of the consideration for SD purposes will be deemed to be equal to the higher of the actual consideration and the market value of the unlisted shares.

The original consultation had proposed extending the market value rule to transfers of shares and securities to connected persons other than companies. However, following respondents concerns namely, costs and administrative burdens, the draft legislation is narrowly targeted to connected companies only.

While this provision is intended to be narrowly targeted, the change is likely to have a considerable cost implication for certain corporate transactions. Techniques and planning known as ‘stamp duty swamping’, which is based on legislation dating back to 1851, are often used to mitigate or eliminate stamp duty on certain corporate reorganisations. From April 2020, this planning will no longer be available and therefore there is a short window of opportunity to implement and execute this planning now.

 

 

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