Stamp duty/SDRT anti-avoidance rule extended to unlisted shares transferred to connected companies.
Following on from a market value rule for transfers of listed securities introduced in 2018, the draft clauses for Finance Bill 2019-20 included a complimentary rule for transfers of unlisted securities to connected companies. However, in this case the provision will be limited to transactions where there is actual consideration for the transfer that includes an issue of shares in the transferee. Both provisions are intended to counter what HMRC have billed as ‘contrived arrangements being used to avoid tax’. The introduction of a market value rule for unlisted shares was widely expected. The restrictions of its application to connected company purchasers and where the consideration includes an issue of shares are welcome, addressing some of the concerns expressed in relation to the listed shares provision.
Following the introduction in 2018 of a market value rule for transfers of listed shares to companies connected with the transferor, HMRC issued a consultation in relation to a similar market value rule for unlisted shares. The consultation suggested such a rule could apply to any kind of transfer to any connected person including individuals, nominees, trusts etc., whether for consideration or not.
However, it appears that HMRC have taken account of the consultation responses that benign transactions such as gifts, distributions in specie, transfers to nominees etc. would be caught as the provision is, like the listed shares provision, limited to transfers to connected companies only.
In addition, and unlike the listed shares provision, the rule will only apply where the actual consideration for the transfer includes an issue of shares by the transferee company. This last condition should therefore remove the types of transactions mentioned above from the market value rule.
Existing stamp duty reliefs such as group relief and share for share exchange relief still apply as the draft provision only determines the chargeable consideration for the transaction. Consequently, the provision should only impact certain share for share transactions at under value where existing reliefs don’t apply.
The draft legislation provides that the provision will apply to transfers that take place from the date the Finance Act 2020 is passed, however it is possible the provision will be brought in at Budget 2019.
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