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Stamp duty consideration

Is the deemed consideration on a share for share transfer the nominal value of the shares?

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Client and I contemplating reorganising client's direct shareholdings in various private trading companies into a holding company, mainly to manager dividend fluctuations. Client has 50% shares or thereabouts in the subsidiaries. Subsidiaries have a fair value of several hundred thousand.

Share for share transfer exemption under S77 finance act 1986 fails due to S77A as the entire shareholding of the trading companies isn't being reorganised, just the holdings of one shareholder. 

However, what I'm wondering is whether the consideration, being a few hundred holding company share with a pre-transaction fair value and a nominal value of a few hundred pounds, qualfies for the de-minimis £1,000 exemption. The fact that HMRC are consulting on a change (see https://www.gov.uk/government/consultations/stamp-taxes-on-shares-consid...) implies to me that the nominal value and not the market value is currently the consideration as the law stands at present.

Also: worth pursuing a pre-clearance for CGT and SD purposes?

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By Justin Bryant
18th Jun 2019 14:14

The nominal value has no relevance other than re the number of voting shares you have (measured by their total nominal value as a proportion of the entire issued voting share capital's total nominal value) and of course your %rights to the company's assets on its winding up, all subject to what's said in the articles of course.

SDRT (unless franked by a SD payment or SD exemption/relief) will be payable on what the issued shares are worth per the link below:

https://www.gov.uk/hmrc-internal-manuals/stamp-taxes-shares-manual/stsm0...

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By ShayaG
18th Jun 2019 15:03

Thanks. But are the securities valued pre-transaction (securities in an empty holding co are worth somewhat less than their norminal value). Or is the post transaction valuation (a few hundred thousand pounds) used?

EDIT "Ad valorem Stamp Duty is levied on the transfer on sale of stock or marketable securities where the amount or value of the consideration paid is in the form of cash, debt or other securities."

If a security isn't "marketable" does that mean the consideration is nil?

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By Vile Nortin Naipaan
18th Jun 2019 13:00

If X issues 100 shares to acquire the entire share capital of Y, then the consideration given to acquire those shares is the 100 shares in X. The value of those 100 shares in X must, by definition be the value of the entire share capital of Y. You may think it's a fuching riddle, but really it isn't. It's not hard at all.

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By ShayaG
18th Jun 2019 14:59

But what value should be used? Fair value before the transaction (few hundred quid?) Nominal value (few hundred quid?) Or fair value after transaction (few hundred thousand quid?) A technical source would be helpful.

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By Vile Nortin Naipaan
18th Jun 2019 15:06

Conventionally, the consideration and what is being acquired are equal in value...

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By ShayaG
18th Jun 2019 17:12

That is HMRC's view

"The shares issued in a single collective transaction should be valued by reference to the property which is acquired in consideration of their issue. "

https://www.gov.uk/hmrc-internal-manuals/stamp-taxes-shares-manual/stsm0...

Legislative support for this proposition is weak: -

Stamps Act 1891 Section 55 "Where the consideration, or any part of the consideration, for a conveyance on sale consists of any security not being a marketable security, the conveyance is to be charged with ad valorem duty in respect of the amount due on the day of the date thereof for principal and interest upon the security."

For an equity instrument, interest and principal due is zero.

Marketable security defined by s122 as traded on a stock exchange.

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By Vile Nortin Naipaan
18th Jun 2019 17:38

Read s 122 again. "A security of such a description as to be capable of being sold in any stock market in the UNited Kingdom", "Of such a description" means, ordinary shares, preference shares, loan stock, etc.

Oh, fuch me... we're not even concerned with the definition of "marketable security" in s 122.

s 155 says that the consideration is "the value of ANY STOCK OR marketable security...". If you look at the definition of "stock" in s 122, you will find that you are dealing with a stock and not a security, so the question of whether it is a marketable security doesn't even arise!

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By ShayaG
19th Jun 2019 09:49

Agreed - thanks. Still an ambiguity about value pre or post transaction, but I wouldn't expect a tribunal to take a friendly view on this.

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By Tax Dragon
19th Jun 2019 10:04

You're confusing yourself because you're looking at it the wrong way round. The consideration given for the new shares is the old shares. Thus the relevant value is that of the old shares.

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By ShayaG
19th Jun 2019 11:20

Respectfully, no. There is no stamp duty on the issue of new shares. What is in question is the stamp duty on the transfer of existing shares from the natural person shareholder to the holding company. The consideration potentially subject to Stamp Duty is the consideration received by the natural person shareholder in respect of this transfer - i.e. - new shares in an empty holding company, which are worth somewhat less than their nominal value pre-transaction.

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By Vile Nortin Naipaan
19th Jun 2019 11:40

That's b0ll0x. The shares are worth what they are worth at the very moment of the transaction; not a moment before, and not a moment after. And at that time they have the very value that the acquired shares had immediately prior to the transaction. Don't pay the stamp duty if you don't want to. Nobody will know. But you may face then a future argument that the transaction was ineffective, if it ever matters. Or, just go and talk to Justin about share swamping Or just pay stamp duty based on your view. Nobody's likely to argue. Realistically though, the stamp duty on the few hundred thousand that you're talking about is just a few thousand. It's not worth all the analysis.

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By ShayaG
19th Jun 2019 13:51

Now we get on to the philosophy of infinitesimals. Mathematically, we would say that at the moment of the transaction the value of the shares is undefined, rather like a Heaviside step function.

I'm not going to make professional decisions on the basis that it's only a few thousand quid. I doubt my analysis would stand up in a tribunal as it doesn't appear to accord with Parliament's intention, and therefore I will be advising my client not to go ahead on this whole transaction.

Thank you for your time and your comments, which were magnificently cantankerous yet genuinely helpful.

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By Tax Dragon
19th Jun 2019 13:59

Naipaan by name, Naipaan by nature.

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By Tax Dragon
19th Jun 2019 11:50

Is it me that's back to front? Whichever, what does the recipient of the consideration hold as a result of receiving that consideration? Shares of no value? Hardly.

There are of course situations where the value of what is received does not match the value of what is given (that 2% you just gave me took my holding to 51%). This doesn't sound like one of those situations.

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By Vile Nortin Naipaan
19th Jun 2019 11:56

You were back to front, the stamp duty is on the old shares, and it is calculated on the value of the consideration, which all things being equal can only be the value of what you both started with and ended up with.

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By Tax Dragon
18th Jun 2019 17:25

Ss1?

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By Justin Bryant
19th Jun 2019 11:36

But if you read that link HMRC's above view is heavily qualified and "by reference to" is very wide (it could allow for share swamping) and there are lots of withheld bits that implies HMRC accept share swamping works (I have never known them to challenge it - in court at least).

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Replying to Vile Nortin Naipaan:
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By Justin Bryant
19th Jun 2019 09:05

But that's not necessarily the case is it; otherwise share swamping planning would not work to avoid SD?

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By Vile Nortin Naipaan
19th Jun 2019 10:27

Arguably it doesn't work. It's just that there are charlatans that pedal it on the basis that it does.

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By Vile Nortin Naipaan
18th Jun 2019 17:30

Incidentally, I see you've changed the OP considerably. It's definitely worth getting a clearance for CGT/TiS purposes. You can't get a clearance for stamp duty purposes. You just get it adjudicated if you meet the conditions, which you say you don't Just don't pay the ½% stamp duty if you don't want to, but the consideration is the consideration, which has always been the value of the shares given as consideration.

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By Tax Dragon
18th Jun 2019 19:06

Aweb is up to its usual tricks. Your reply that appears above my "ss1" comment wasn't there when I made it. Now you're saying the OP has changed but I don't see that.

This kind of thing contributes to... I don't remember who was asking, but they thought their remarks were always bottom of the pile.

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By Vile Nortin Naipaan
19th Jun 2019 10:24

The OP is completely different to the way it was when I posted my first response.

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By Tax Dragon
19th Jun 2019 10:34

OK, I'll take your word for it. Could just be that I never read Anonymous queries properly first time (first time here being before Justin's opening reply).

Edits (to any post) should not be allowed once that post has been replied to.

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