View the related Tax Guidance about Stamp taxes
Introduction to stamp taxes
Introduction to stamp taxesThere are a five UK stamp taxes which apply to transactions involving UK land and buildings, stocks and marketable securities and partnership interests. The five stamp taxes are:•stamp duty land tax (SDLT), applying to transactions in land and buildings in England and Northern Ireland •land and buildings transactions tax (LBTT), applying to transactions in land and buildings situated in Scotland•land transaction tax (LTT), applying to transactions in land and buildings situated in Wales•stamp duty applying to instruments (for example, a stock transfer form) that transfer UK shares and certain other types of stocks and securities•stamp duty reserve tax (SDRT) applying to electronic (or paperless) transfers of UK shares and certain other securitiesIn addition, there is separate property tax known as the annual tax on enveloped dwellings (ATED) which should be considered along with the SDLT (or LBTT/ LTT) consequences of the acquisition of residential property. Broadly, ATED applies to the acquisition of certain UK dwellings worth more than £500,000 by companies and other types of ‘non-natural persons’. For more information, see the Overview of the ATED regime guidance note. Each stamp tax is briefly described below, with links to separate guidance notes containing further details.SDLT, LBTT and LTTSDLT was introduced on 1 December 2003 to replace stamp duty on transactions in land and buildings. Its scope is much wider than stamp duty in that it
Purchase of own shares ― overview
Purchase of own shares ― overviewThis guidance note discusses the purchase by a company of its own shares (often referred to as a ‘share buyback’ or a ‘purchase of own shares’). This may be considered for a variety of reasons, such as a tax efficient exit route from the company or a simple restructure of share capital. However, there are a number of issues, both legal and tax, that need to be considered before such a transaction is carried out.The repurchased shares can either be immediately cancelled, which is typically the case, or they may in some circumstances be retained by the company (effectively ‘in treasury’). If the shares are retained, companies can sell them for cash (to raise funds or under an option scheme) or transfer them for the purposes of employee share schemes. These shares, referred to as ‘treasury shares’, are dealt with in further detail in the Treasury shares following a share buy back guidance note.The tax treatment for the shareholders in a company on a purchase of own shares will fall into one of two categories ― either the ‘income treatment’ or the ‘capital treatment’. Under the income treatment, the purchase is dealt with as an income distribution (ie a dividend). However, there is an exception for buybacks made by unquoted trading companies where, provided certain conditions are met, the seller is instead treated as making a capital disposal. See the Income treatment for purchase of own shares and Capital treatment for purchase of own
SDLT on property acquisitions by individuals ― tax rates
SDLT on property acquisitions by individuals ― tax ratesIntroductionStamp duty land tax (SDLT) was introduced for land transactions with effect from 1 December 2003. Whereas stamp duty was a tax on documents, SDLT is a tax based on the acquisition of a chargeable interest, whether or not evidenced in writing. When it was originally introduced, SDLT applied to all UK land transactions. Devolution has resulted in Scotland and Wales introducing their own regimes.From 1 April 2015, land and buildings transaction tax (LBTT) applies to land transactions in Scotland. For details of LBTT, see Sergeant and Sims on Stamp Taxes AA12–AA22 (SSSD, AA[AA351]–SSSD, AA[AA862]). See also the guidance on the Revenue Scotland website. From 1 April 2018, land transaction tax (LTT) applies to land transactions in Wales. For details of LTT, see Sergeant and Sims on Stamp Taxes AA23–AA34 (SSSD, AA[AA901]–SSSD, AA[AA2115]). See also the guidance on the Welsh Revenue Authority website. Whilst the underlying rules applying to LBTT, LTT and SDLT are broadly similar in nature, the taxes are not identical. The rest of this guidance note covers the law which applies to transactions in England and Northern Ireland only.This guidance note focuses on the SDLT rates that apply to transactions where the purchaser is an individual. For a discussion of the transactions that are chargeable to SDLT, the meaning of chargeable consideration, the meaning of residential and non-residential property, anti-avoidance provisions and SDLT reporting, see the SDLT on property acquisitions by individuals guidance note.For the rules that apply
Introduction to management buy-outs (MBO)
Introduction to management buy-outs (MBO)Basic structure of the MBOAn MBO takes place when the management team, which typically includes directors and first tier management, enters into an agreement to purchase an existing business. The usual form of an MBO is either:•the acquisition of the shares in the target company (Target) by a company newly incorporated by the management team to make the acquisition (Newco)•the acquisition of the trade and assets of Target by Newco•the transfer of Target’s trade to a subsidiary of Target (Target Subco) followed by Newco’s acquisition of Target Subco (known as a hive-down)Other structuring considerations ― funding for the transactionThe management team will invest funds into the new structure, which will usually consist of a combination of share capital and loan financing (eg loan notes). By owning an equity stake in Newco, the management team have the incentive of benefiting from the capital growth of the company on future disposal of their shares. It may be possible that the transaction can be structured a way that the investors benefit from EIS relief. See the Enterprise investment scheme ― introduction guidance note for further details. The management team may also benefit from business asset disposal relief (previously
Demergers ― overview
Demergers ― overviewThis guidance note gives an overview of why and how companies and groups demerge, and the aims and process of tax planning for demergers.In simple terms, a demerger involves the separation of a company’s business into two or more parts, typically carried on by successor companies under the same ownership as the original company.Companies (and groups) may want to split out their activities for many different reasons. There may be a desire to focus management on one specific part of the business or there may be conflicting interests between shareholders. There could also be legal reasons to separate a trade out from the rest of the group (eg to ring fence liabilities). It may be the only way for a purchaser to be able to buy certain parts of the business. While demergers are usually triggered by a variety of commercial reasons, a business undergoing a demerger will also want to minimise, and ideally eliminate, any tax charges arising on the demerger.The different mechanisms for achieving a tax efficient demerger fall into three main categories:•statutory demerger•demerger by way of reduction of share capital (often referred to as a capital reduction demerger)•demerger by Insolvency Act 1986, s 110 demerger (also known as a liquidation demerger)For each of these demergers there are tax provisions which should mean that, for tax purposes, a qualifying distribution is exempt and as such there is no income tax for the shareholder.The decision as to which demerger mechanism to use will
Type 1 (direct) statutory demerger ― tax implications
Type 1 (direct) statutory demerger ― tax implicationsThis guidance note deals with the tax consequences for shareholders and companies involved in a type 1 (direct) statutory demerger. For an introduction to statutory demergers, including an overview and diagrams of the three permitted types of demerger, conditions for a statutory demerger, chargeable payments and clearances and reporting, see the Statutory demergers ― overview guidance note.For overall guidance on demergers, including choice of the most appropriate route and planning the demerger project, see the Demergers ― overview guidance note.Statutory demergers are sometimes referred to as exempt demergers.Type 1 ‘Direct demerger’ ― overviewIn a Type 1 demerger (also known as a direct dividend demerger), separate groups of shareholders acquire shares in separate 75% subsidiaries from the original holding company. It is permitted for all or any of the shareholders to acquire shares in this way. A simple illustration of a Type 1 demerger is as follows:The following is a diagram of a direct demerger of two trading subsidiaries to different shareholders:Reliefs for shareholdersProvided the conditions are met, the dividend in specie ‘paid’ to the shareholder should be an exempt distribution which is not chargeable to
Family investment company (FIC)
Family investment company (FIC)What is a family investment company (FIC)?An FIC can apply to many different types of company structures used for different purposes although originally they began as estate planning vehicles. This guidance note summarises how an FIC can be a useful structure for a family business and provides links to additional sources of information. The structuring of FICs is a complex area with a lot of options on how to hold the shares, etc, therefore if an FIC structure is implemented, advice should be taken from relevant legal and tax experts.Essentially, an FIC is simply a company that has been established with the specific purpose of meeting the needs of, usually, a single family. An FIC allows the founders of the business to retain some involvement in the company and possibly a managed income stream but also pass the investments down to their children or grandchildren. They may be favoured above trusts because they are a more familiar structure but the option of using trusts should also be considered, see the Taxation of trusts ― introduction guidance note and the attached comparison of a FIC and a discretionary trust:The FIC is usually set up as a new company with a moderate level of share capital, eg 10,000, £1 ordinary shares to provide a reasonable capital base. Giving the family cash amounts in order to allow them to then subscribe for shares means that there are no issues of share valuation.Investments can be in any form that a
SDLT on property disposals by individuals
SDLT on property disposals by individualsStamp duty land tax (SDLT) is generally payable on the purchase or transfer of property or land in the UK where the amount paid is above a certain threshold. If the consideration is over £40,000, the transaction must be notified to HMRC on an SDLT return, even though no SDLT may be due. When it was originally introduced, SDLT applied to all UK land transactions. Devolution has resulted in Scotland and Wales introducing their own regimes.From 1 April 2015, land and buildings transaction tax (LBTT) applies to land transactions in Scotland. For details of LBTT, see Sergeant and Sims on Stamp Taxes AA12–AA22 (SSSD, AA[AA351]–SSSD, AA[AA862]). See also the guidance on the Revenue Scotland website. From 1 April 2018, land transaction tax (LTT) applies to land transactions in Wales. For details of LTT, see Sergeant and Sims on Stamp Taxes AA23–AA34 (SSSD, AA[AA901]–SSSD, AA[AA2115]). See also the guidance on the Welsh Revenue Authority website. Whilst the underlying rules applying to LBTT, LTT and SDLT are broadly similar in nature, the taxes are not identical. The rest of this guidance note covers the law which applies to transactions in England and Northern Ireland.Since SDLT is normally paid by the purchaser in the transaction, there are only limited points for the vendor to consider. SDLT is discussed further in the SDLT on property acquisitions by individuals guidance note.Linked transactions and multiple dwellings reliefA request by the purchaser for the vendor to split the disposal into a
Penalties for inaccuracies in returns ― overview
Penalties for inaccuracies in returns ― overviewIntroductionAs part of their modernisation of powers, deterrents and safeguards, HMRC introduced a harmonised penalty regime for errors in returns and documents with effect from 1 April 2009. The regime was extended to a wider range of taxes from 1 April 2010. The main legislation is found at FA 2007, s 97 and FA 2008, s 122. This legislation was brought in to simplify and harmonise the penalty regime across all of the major taxes.HMRC has also provided the following factsheets: CC/FS7a regarding inaccuracies and CC/FS7b regarding under-assessments.The main aim of the legislation was:•to align the penalty regime across direct and indirect taxes•to provide a deterrent to non-compliance by penalising those who fail to comply•to encourage the non-compliant to return voluntarily to complianceIt was also envisaged that the tiered approach under the regime would introduce fairer and more proportionate results for offences of differing levels of behaviour. HMRC made it clear in the consultation that it felt higher penalties were appropriate for those who did not disclose errors unless prompted and / or did not cooperate in a check of the returns.The basis of calculation of penalties is a two-stage process:1)calculate a percentage, based on the taxpayer’s behaviour ― see the Calculating the penalty for inaccuracies in returns ― behaviour of the taxpayer guidance note2)calculate the potential lost revenue (PLR). This is the extra tax due as a result of correcting the inaccuracy or under-assessment ― see the
Type 2 and 3 (indirect) statutory demergers ― tax implications
Type 2 and 3 (indirect) statutory demergers ― tax implicationsThis guidance note deals with the tax consequences for shareholders and companies involved in either a type 2 or type 3 (indirect) statutory demerger. For an introduction to statutory demergers, including an overview and diagrams of the three permitted types of demerger, conditions for a statutory demerger, chargeable payments and clearances and reporting, see the Statutory demergers ― overview guidance note.For overall guidance on demergers, including choice of the most appropriate route and planning the demerger project, see the Demergers ― overview guidance note.Statutory demergers are sometimes referred to as exempt demergers.Unlike direct demergers, an indirect statutory demerger can involve a distribution of assets (as opposed to, or in addition to, shares) and still qualify as an exempt distribution.Note that prior to the demerger it may be necessary, or desirable, to carry out a hive-down (ie an intra-group transfer of assets to the demerged company).Type 2 ― indirect demerger ― trades transferredA type 2 indirect demerger involves the transfer by all or some of the shareholders of the 75% trading subsidiaries’ trades instead of the shares to the new companies set up by shareholders. Consideration is in the form of shares in the new companies. This may be illustrated as follows:Type 3 ―
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