Share for share exchange

Husband and wife Holdco, Husband only originalco

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A client is looking at setting up a group, he is the sole director and shareholder. He has a base cost of £300,000 in the originalco. He has set up Holdco 50/50 with his wife. What are the issues with this, I am concerned with stamp duty and FA1986 s77, it does not mention spouse exemption, so I am looking at changing Holdco to Husband only.

Is there any step by step guides I could acquire to ensure I dont miss anything. 

Replies (25)

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By Taxguy96
27th Mar 2024 13:05

Some good corporate reorganisation books by Pete Miler and Richard Bramwell which can help but would warn against doing this type of work if you don't usually - lots of tax traps which could arise.

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paddle steamer
By DJKL
27th Mar 2024 13:31

I have "Taxation of Company Reorganisations" sixth edition, Miller,Hardy,Ismail (Bloomsbury) , and it is useful, but would never dream of DIY -I bought it to more closely follow what our "Pros from Dover" were telling me re a transaction we are undertaking.

As Taxguy96 says it would be a very brave individual who launched into this type of work without a supervised background experience in this type of work.

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Replying to DJKL:
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By Cleggy1
27th Mar 2024 15:40

I have completed share for share exchanges before, although many moons ago and with a partner overseeing.

I have read "Taxation of Company Reorganisations" and "Raynet's Tax Planning for Family and Owner Managed Companies", the latter pointing out the potential Stamp Duty unless the swap involves a 'mirror image' I have also reviewed FA 1986 s77, but cannot see it in allowing the exemption if the wife is involved. On speaking to the client and his wife, she will gift her shares in the holdco to her husband prior to the reorganisation.

The main thing I have to get my head round now is that there are going to be 2 different Companies moving to the group, Company A with a base cost to the shareholder of £300,000 and a MV of £400,000 and Company B with a base cost of £1 and MV of £100,000. I need to ensure that the shares issued and share premium is correct.

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Replying to Cleggy1:
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By Taxguy96
27th Mar 2024 20:31

If you are bringing companies under a single ultimate holding company there should be no share premium, rather merger relief will likely apply.

In your position, I would also review s77A.

Have you applied for clearance in respect of these transactions?

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Replying to Taxguy96:
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By Cleggy1
28th Mar 2024 08:53

Thank you I didnt see any reference to s77A in the books so didnt read it. As the wife only holds only 25% of the Holdco, she isnt caught by the disqualifying event of "2(a)a particular person obtains control of the acquiring company, or"

The client knows the risk of not applying for advance clearance, but believes there is an immediate business advantage and isn't prepared to wait.

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Replying to Cleggy1:
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By FactChecker
28th Mar 2024 10:38

Well it's his business; so long as he doesn't think he has your imprimatur to do so.

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By paul.benny
27th Mar 2024 15:39

No disrespect to OP
Here's yet another example of Client coming up with a scheme that we go and work out how to implement his idea.

@OP - What's Client trying to achieve by this new structure? Once you know that, you recommend solutions that achieve desired outcome avoiding tax and other landmines.

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Replying to paul.benny:
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By Cleggy1
27th Mar 2024 15:46

It is about making divisional splits to the business, it will help each division grow, if they are not part of the same company.

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Replying to Cleggy1:
Stepurhan
By stepurhan
27th Mar 2024 23:06

How? This is a genuine question. How does not being part of the same company enable each division to grow?

Your explanation isn't really much better than "because they felt like it". If you're going to do a major restructure, then being clear on the goals and confident this is the best way of achieving the goals is key.

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By TheTaxMan_
03rd Apr 2024 23:14

When you say they have setup a holdover, does this mean they have already transfered the shares across or does this mean they've just incorporated a newco owned 50% by each other?

For these types of transactions I'd generally do the spousal transfers after (or before) the exchange.

1. Incorporate newco owned by sole director/ shareholder.
2. The sole shareholder exchanges their shares in originalco for a new issue of shares in newco.
3. The sole shareholder transfers X amount of their shares to their spouse.

CGT - should be covered by s.135. The new issue of shares shod stand in the shoes of the original shares. 300k base costs transfers to new holding.
Stamp duty - if the transaction is a mirror image, no stamp due s.77. Should be as husband owns 100%. Note if spouse owns some of newco the share holding will not be mirror image so no stamp exemption.
Spousal transfers generally exempt from tax.

As others have said they're many conditions that should be met for these type of restructure transactions. Also additional taxes to consider e.g. ERS.

Clearance can be sought from HMRC on the transaction.

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By SteveHa
04th Apr 2024 15:45

S77 requires that shares in the new company are held in the same proportion as shares in the old (or as close as possible). No ifs, no buts. This will fail S77 relief for both of them.

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Replying to SteveHa:
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By Justin Bryant
04th Apr 2024 17:14

That's right, but this SD/SDRT liability (like many others) never seems to get enforced by HMRC in practice.

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Replying to Justin Bryant:
By Ruddles
04th Apr 2024 19:18

You mean it's an SD/SDRT avoidance scheme that works?

;¬)

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Replying to Ruddles:
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By Justin Bryant
05th Apr 2024 09:29

No.

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Replying to Justin Bryant:
By Ruddles
05th Apr 2024 10:42

Why not? If there is no valid HMRC enquiry/DA in, say, 90%+ of cases then surely it "works".

;¬)

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Replying to Ruddles:
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By Justin Bryant
05th Apr 2024 10:48

If you're trying somehow to be funny or clever, it's failing pretty badly. Par for the course of course.

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Replying to Justin Bryant:
By Ruddles
05th Apr 2024 11:34

Neither funny nor clever - just observing an inconsistency.

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Replying to Ruddles:
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By Justin Bryant
05th Apr 2024 11:41

There's currently one well-known trolling idiot here who I never respond to and you're close to becoming the 2nd on that list.

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Replying to Justin Bryant:
By Ruddles
05th Apr 2024 11:44

Promises, promises

Anything to put an end to your ad hominem insults.

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Replying to Justin Bryant:
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By Tax Dragon
05th Apr 2024 13:44

Justin Bryant wrote:

That's right, but this SD/SDRT liability (like many others) never seems to get enforced by HMRC in practice.

Is it not self assessed? If so it's straightforward evasion knowingly not to perform that self assessment. And presumably you are not involved with that, so... how is it you know about enforcement levels?

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Replying to Tax Dragon:
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By Justin Bryant
05th Apr 2024 13:48

I've no idea what you're on about (as usual). I know about all kinds of tax fraud and enforcement (or not as the case may be) thereto e.g. R&D claims, BTLs, Airbnb, Crypto, dodgy PPR filings etc. Why should knowing of such things incriminate me in any way? Or are you suggesting that by not knowing much about such things you are somehow sitting pretty (i.e. ignorance is bliss)?

It's pretty well known that proper SD/SDRT compliance, like proper SDLT compliance (and proper tax compliance in the other above examples), is often overlooked (one way or another). You obviously don't know that. Good for you I say if you think that puts you at some sort of moral or technical advantage.

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Replying to Justin Bryant:
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By Tax Dragon
05th Apr 2024 15:12

Let me be clearer.

What, in a professional forum, was the point of your comment timed at 17:14 yesterday? Ruddles may have wondered the same.

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Replying to Tax Dragon:
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By Justin Bryant
05th Apr 2024 15:43

It was meant to mean no more than what it says. I could have equally said crypto tax fraud (or take your pick tax fraud) is not properly policed by HMRC etc. (as I have done on many previous occasions here). You and the Puppy are just being mischievous trolls and trying to stir things up as usual. I may add you as 3rd on my list.

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Replying to Justin Bryant:
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By Tax Dragon
05th Apr 2024 16:35

I'd rather live in a free society than a police state, and to some extent fraud is a price we pay for freedom... but I agree, better enforcement of at least some of these laws would be good - the less fraud there is, the better it is for everyone. Like having speed cameras where there are variable speed limits, to make people stick to them so they work as they should for everyone's good.

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Replying to Tax Dragon:
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By Justin Bryant
05th Apr 2024 16:43

You're on reprieve (unlike the Puppy and the other troll that I have banned all responses to).

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