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26th Feb 2013 11:26

Transactions in securities

Yes - the line of attack would be to invoke the transactions in securities rules.

Yes - seeking clearance is a way to gain certainty but I think the certainty you will gain is the certainty that HMRC will issue a counteraction notice, i.e. I doubt whether you will get a clearance.

HMRC will ask for your commercial reasons for paying cash for A and B Ltd. You may well have commercial reasons for bringing the companies together but this is not sufficient to justify paying cash. Non monetary consideration could be issued such as shares in Newco (non redeemable shares). If the companies are of equal value, ordinary shares could be issued. If they are unequal then the balance could be issued in some form of fixed preference share.

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26th Feb 2013 11:37


I shyed away from this one yesterday. Apologies for the ambush.

Since Newco will be owned 50:50 by the respective 100% owners of A and B Ltd, it occurred to me that Newco wouldn't be connected with Mr A or Mr B, and so the fundamental change of ownership condition would be satisfied in this instance?

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26th Feb 2013 11:52


Fundamental change in ownership is defined in ITA 2007 s686 as requiring at least 75% change in ownership.

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26th Feb 2013 12:05

Yes but

Company A was owned 100% by Mr A and is now owned 100% by Newco who isn't connected with Mr A (because he only has 50%)? Likewise with the Bs?

Aren't we looking at the persons that hold the share capital before (Mr A/Mr B) and after (Newco)?

Cleary was the first thing that went through my mind, but then I stumbled with this fundamental change of ownership condition.

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By blok
26th Feb 2013 12:25


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26th Feb 2013 12:38


George, I see your argument.

One might argue that Mr A and Mr B are connected with each other in relation to Newco as they are "acting together to secure or exercise control". The meaning of this phrase has never been totally clear to me. There is brief HMRC commentary at but this does not put the point beyond doubt.

Perhaps it is worth trying the clearance application after all!


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26th Feb 2013 13:07

My suspicion would be...

... that HMRC wouldn't give clearance, but I couldn't immediately see a basis for them not doing so.

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17th Mar 2015 15:50


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27th Feb 2013 10:54


Assuming George's escape route does not work, I do not believe tax clearance would be given. As previously stated, the commerciality of the merger is not in question. It is the commerciality of paying cash. Arguments such as you propose sound good but there are always alternatives to achieve the same objective without paying cash amd this will be HMRC's viewpoint.

On the lack of distributable reserves point, HMRC believes that this can embrace future reserves as well as current reserves.

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27th Feb 2013 11:13

Ooh... I'd forgotten that the OP had come back on this

My concern was the reference to circumstances D and E.  I can see that the OP is referring to HMRC's manuals that don't appear to have been updated for the significant changes made by FA 2010.

It is the case though that there can be no income tax advantage if the target company has no reserves available for distribution.

Notwithstanding any of that though, I agree with Graham that the only certain way of getting HMRC's "blessing" would be a share for share exchange. You could, of course, try your luck at a clearance.

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02nd Apr 2013 22:10

Fundamental change of ownership exemption
I think the way to go is not to seek clearance on the basis of change in ownership exemption. the conditions are technically met but tight due to 50 per cent ownership. Argue it out if counteraction is issued down the line. The point gbuckell makes is correct but I don't think the shareholders will be connected with each other just by virtue of the fact that they happen to hold over 50 per cent of shares in aggregate. There is lots of case law on this. IRC v Steele etc.

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