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Stamp duty/SDRT: cancellation schemes in takeovers

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As announced in the Autumn Statement, the government has published draft regulations (The Companies Act 2006 (Amendment of Part 17) Regulations, SI 2015/Draft) to prevent companies avoiding stamp taxes by carrying out takeovers using cancellation schemes of arrangement. Under a cancellation scheme, instead of the target’s shares being transferred, they are cancelled and then reissued directly to the bidder. Stamp duty and SDRT are not due on a cancellation and reissue of shares.

The regulations will amend the Companies Act 2006 to prohibit companies from reducing their share capital as part of a scheme of arrangement by virtue of which the company will be acquired by someone other than its existing shareholders, unless this is simply to insert a new holding company.

In future, the acquiring company in a takeover will instead have to use a transfer scheme of arrangement or a contractual offer, on which stamp duty or SDRT is payable.

The tax impact and information note (TIIN) published with the draft regulations shows that 24 companies completed cancellation schemes of arrangement in 2012/13, and 20 in 2013/14. The TIIN suggests that factors such as strong economic growth and greater availability of financing could mean more takeovers in future. The change to the law is expected to gain the exchequer £65m in both 2015/16 and 2016/17. The TIIN states that there are also fairness arguments in favour of the change, in that companies in takeovers should pay the same tax, regardless of the mechanism they use.

The measure will come into effect once the new regulations are made, which is expected to be in ‘early 2015’.

Issue: 1247
Categories: FA 2015 , News , SDRT , Stamp taxes