Share for share exchange

Must the buyer issue the shares?

Didn't find your answer?

Good evening all

client is negotiating a whole company sale. Part of the consideration will be issue of new ordinary shares in another member of the buyer's group. 
 

Legislation and guidance seem pretty clear - s135 will not apply - but I'm just wondering if I've overlooked anything?

TIA

PS - I've already advised that non-application of s135 - by election or otherwise - may not be a bad thing, depending on what happens re CGT after 4/7/24. 

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By taxdigital
02nd Jun 2024 09:25

I would start by saying the question isn’t too clear to me. Still, to answer your questions:

Must the buyer issue the shares?
Yes, of course! It isn’t about a swap, if that’s what you meant.

1874 wrote:

s135 will not apply - but I'm just wondering if I've overlooked anything?


No one can answer that except yourself whether or not the s.135 conditions have been met.

1874 wrote:

PS - I've already advised that non-application of s135 - by election or otherwise - may not be a bad thing, depending on what happens re CGT after 4/7/24. 


That depends. I presume you’re referring to s.169Q.
As for Labour getting rid of various TCGA reliefs, I would say clients are currently more worried about VAT on school fees etc as Labour appears set to form the next government.
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Replying to taxdigital:
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By 1874
02nd Jun 2024 16:42

Thank you. Let me try to clarify my question.

Buyer B is buying target T. However, rather than B issuing shares in itself in exchange for the target shares, another member of B’s group will issue shares to the vendors. Whether or not the other s135 conditions are met it seems to me that a key one is not - because it is not the buyer that is issuing shares. I simply wanted to know if I was missing something that says that s135 would still be possible where it is a member of the buyer’s group that is issuing the shares instead.

Re non-application of s135 perhaps being a good thing of course it depends. I wasn’t thinking so much about removal of reliefs but other measures, such as aligning CGT rates with IT rates. The vendors will not qualify for BADR re the new shares but are still interested in deferring the gain if possible.

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By Taxguy96
03rd Jun 2024 07:33

On the face of it, you are correct that s.135 will not apply. However it is possible to get to a s.135 position with a few intemediary steps.

The usual step is that the acquiring company will acquired the shares for a non-QCB, this non-QCB is then flipped up the group structure with any midcos issuing further non-QCBs, once topco (or the company in which equity is to be offered) is the next inline, the non-QCB which your clients hold in the immediately preceding subsidiary will be exchanged for shares.

Would probably recommend going for clearance (shouldn't be contentious if its a 100% exist for your client, but gives both buyers and sellers some comfort), and of course will need buyers support of the proposal.

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Replying to Taxguy96:
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By 1874
10th Jun 2024 17:22

Apologies for the delay in coming back to you, but thanks for that. Although I'm not sure how this would work in my client's case.

The shares are to be issued not by a company further up the chain but by another subsidiary to the side. So, buying company B pays cash and non-QCBs in itself to sellers of A. s135 treatment should be available at that point. However, if those non-QCBs are then 'flipped' for shares in C issued to the sellers, does this not crystallise the gain rolled into the non-QCBs?

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