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Stamp Duty Land Tax & Co Buy Back

Company buying back shares and transferring res. property as part of consideration. SDLT in point?

A company is buying back shares as part of a plan to remove a director/shareholder from the company.

There are sufficient reserves to execute the plan.  The intention is to pay a lump sum and transfer ownership of some residential properties.

Would SDLT be payable on the 'transfer' of the properties? 

Thanks for any thoughts

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22nd Mar 2018 09:36

If the properties are distributed as a dividend or the like, there may be no consideration and no SDLT.

Any consideration generally = SDLT.

Do get tax advice on this and a review of any docs a solicitor prepares. They generally do everything they can to incur SDLT by creating debts or writing "in consideration of" all over any document. They generally don't know any more about SDLT than how to bang numbers into the online calculator.

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By trucker
22nd Mar 2018 10:20

Wondering if this would be considered in the same way as a 'dividend in specie' or 2 transactions ie sale of shares then purchase of properties incurring SDLT?

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22nd Mar 2018 10:27

Company law requires payment for a purchase of own shares to be in cash. Therefore the deal would need to be structured as a cash transaction with some of the cash used to buy the properties, i.e. SDLT will be due. Cash needs to pass in a circle otherwise there is an argument that the transaction is void.

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22nd Mar 2018 11:13

I agree with gbucknell. The way proposed would not be valid under company law and you would be faced with a distribution. See in particular Corporation Tax Manual CTM 17505, third paragraph.

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By trucker
02nd Apr 2018 18:54

Thank you for your replies. However, s691(2) suggests 'Where a limited company purchases its own shares, the shares must be paid for on purchase'. Surely the transfer of properties can represent payment - is CTM17505 not HMRC guidance only?? I'm interested in hearing your thoughts.

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By Ruddles
02nd Apr 2018 19:21

Regardless of the company law requirements, the company is transferring a property - is it receiving anything (ie consideration) in return?

A dividend in specie is possible, but that would not be compatible with a buyback.

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By trucker
to Ruddles
03rd Apr 2018 07:16

Shares.

Do you have any thoughts as to whether the company can transfer the properties out as payment rather than cash?

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By Ruddles
to trucker
03rd Apr 2018 08:30

I'm not sure that HMRC;s guidance (that is all it is) stands up to scrutiny when saying that a transfer of an asset does not represent payment - all you need to do is look up the ordinary meaning of "payment". As you have noted, the Companies Act makes no reference to payment having to be made in may form of currency. Nevertheless, in view of HMRC's views, I'd proceed with caution, especially if you're hoping for capital treatment.

In any event, SDLT is likely, IMO, to be chargeable.

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03rd Apr 2018 15:58

Companies Act 2006 s691 requires ‘shares be paid for on purchase’. HMRC’s view is that the transaction must be in cash. BDG Roof-Bond Ltd v Douglas (2000) obiter suggested payment by assets allowed – whether this is correct has not been confirmed. However, should the company not have sufficient funds HMRC will allow the vendor to lend the consideration back to the company immediately after purchase subject to the ‘connection’ rule. Tax Bulletin 21 also allows the issue of bonus shares prior to purchase thereby increasing the number of shares.

https://www.accountingweb.co.uk/business/finance-strategy/share-buybacks...

A share buy back needs to be cash for capital treatment.

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By Ruddles
to Justin Bryant
03rd Apr 2018 11:27

Justin Bryant wrote:
A share buy back needs to be cash for capital treatment.

Says who?

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to Ruddles
03rd Apr 2018 15:57

Unless you drew HMRC's attention to their cash payment view mentioned above in the link below in your clearance letter it would not be full disclosure in my view:

https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm17505

If they accepted that nonetheless and gave clearance I would be surprised.

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By Ruddles
to Justin Bryant
03rd Apr 2018 16:55

It would be interesting to see what their justification for a refusal is - I would be asking them to point to the statutory authority that payment must be made in cash.

My point was that HMRC take the view that cash is required for any own purchase - you seemed to indicate that it was specific to capital buybacks, and I was wondering where you picked that up from.

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to Ruddles
03rd Apr 2018 16:59

By not drawing attention to HMRC's published clear view on that point in your clearance letter you would be opening yourself up to the risk of that clearance not being a full disclosure of all the relevant facts should HMRC challenge it. If you and your clients want to take that risk nonetheless then good luck.

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By Ruddles
to Justin Bryant
03rd Apr 2018 17:15

Bollox. HMRC's (potentially) inaccurate guidance is not a relevant fact. A clearance application is a request, not a statement. Provided that all of the facts and circumstances of the proposed transaction are disclosed, and the transaction does not deviate from those disclosed facts, the taxpayer can rely on any clearance given.

In any event, though, where did you pick up that I would not highlight the non-cash payment?

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to Justin Bryant
03rd Apr 2018 17:34

In my experience, if you don't say in the clearance how the consideration is to be paid, HMRC will make a point of asking.

They won't provide a positive clearance if the consideration isn't a consideration in money.

Without a positive clearance capital treatment cannot apply.

There is no appeal procedure. There is no mechanism for debate.

The only route to argue the point is to not apply for clearance, but treat the purchase as one to which capital treatment applies (making a return within 60 days), then you can argue the point on enquiry.

If it went to tribunal, you need to balance the High Court obiter in BDG Roof Bond, with the House of Lords Decision in CIR v Littlewoods Mail Order Stores that a sale (and a purchase) necessarily involved a consideration in money.

Waste of fuching time. IMO.

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By Ruddles
to Portia Nina Levin
03rd Apr 2018 18:26

It does bring into question the relevance of the words at s1033(6) - especially “anything else”

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