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LPC Law Notes Private Acquisitions Notes

Tax Notes

Updated Tax Notes

Private Acquisitions Notes

Private Acquisitions

Approximately 339 pages

A collection of the best Mergers and Acquisitions* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Mergers and Acquisitions notes available in the UK this year. This collection is f...

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The following is a more accessible plain text extract of the PDF sample above, taken from our Private Acquisitions Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Tax

Type of tax

Individual/Corp?

Seller/Buyer?

Share/Asset?

Corp tax on trading profits

 Corp Seller Share or Asset

Corp tax on chargeable gains

 Corp Seller Share or Asset

Income Tax

 Individual Seller Share or Asset

CGT

 Individual Seller Share or Asset

VAT

 Individual or Corp Seller or Buyer Business (TOGC)

Stamp Duty

 Individual or Corp Buyer Share

SDLT

 Individual or Corp Buyer Share or Asset

[SDLT clawback]

 Individual or Corp Target (indirectly B) Share or Asset

De-grouping charges

 Corp Seller Share

Structure for approaching tax q:

  1. is scenario share sale or business sale?

  2. who is receiving cons/is prima facie chargeable for tax?

  3. what tax(es) will be payable?

  4. how is it/are they calculated? (nb. you won’t actually have to calculate but useful notionally)

  5. are there any exemptions or reliefs (ie. can any tax be mitigated/ reduced/ extinguished?)

  6. apply any test(s) relevant to exemptions or reliefs to the facts

  7. Conclude whether the exemption or relief applies on the facts

Share sales

By corporate Seller:

Answers to (1) and (2) are clearly share sale and corporate chargeable for tax.

  1. Main tax will always be corporation tax.

  2. Tax will be calculated on the chargeable gain made on the disposal of shares

  1. Exemptions

‘SSE’ - Substantial Shareholding Exemption

Main one - v imp:

3 x conds

  1. selling co must hold @ least 10% of T’s share capital

  2. for @ least 12 consecutive months in 2 year period prior to disposal

  3. both selling co and target co are trading co’s or members of a trading group thr/out the 12 month period before and immediately after sale

... Then no tax payable on sale of shares

Tax deferral on share-for-paper exchange

If SSE not available, this may be if cons is in form of paper

2 x conds

  1. B must hold, or as a result of exchange, will hold over 25% of T’s OSC and

  2. there must be a bona fide commercial reason for structuring payment in shares/loan notes [ie. not just tax avoidance]

Where paper is loan notes there is another non-stat cond that:

  1. the loan notes should not be redeemable until @ least 6 months after their date of issue.

Effects of tax deferral

  • in form of shares = ‘Rollover’

S’s tax liability on the sale of T shares is effectively postponed until S sells the shares it has been issued in the B. S’s chargeable gain (or loss) for tax purposes is calculated as the amount if originally paid for T and the amount for which it sells shares in B. Value of T shares on date of actual transfer is therefore irrelevant.

Sum = Amount it makes selling B shares minus amount originally paid for T

Nb. S will only accept shares as cons from B if B is listed co as that means its shares will be freely marketable

  • in form of loan notes = ‘Holdover’

The tax on any gain is deferred until the loan notes are redeemend, sold or otherwise disposed of. Where shares are sold in exchange for LNs, the tax liability arising on the original shares is just held in suspense until the LNs are redeemed, sold or otherwise disposed of. This type of deferral (as it is different to shares) is known as holdover. The amount of tax on the gain is never reduced (ie. If a S bought a building for 300 and sold it for 350 of LNs to a B, when the S redeems his LNs he will owe corp tax on his chargeable gain on 50).

Nb. if S accepts cons in form of LNs, it should require LNs to be supported by a guarantee from a bank (or listed part co of the B) or by security over B’s assets.
SSE and share-for-paper exchange If SSE is satisfied, even if cons is in paper form there will be no chargeable gain for tax purposes. Therefore SSE is most desirable exemption as w/share-for-paper S is still paying tax just deferring it.
Pre sale dividend If a T declares a pre sale div it will strip the T of value and therefore reduce chargeable gain for S. Generally, there is no tax payable on a dividend to a UK co.

  1. Apply to facts

  2. Conclude

By individual Seller

As above, (1) and (2)

  1. relevant tax = Capital Gains Tax

  2. calculated on chargeable gain on 1 million

  3. Exemptions

ER’ - Entrepreneur's Relief

Tax rate of 10% applies on chargeable up to a 10 mill cumulative lifetime amount if:

  1. individual disposing of shares in a trading co

  2. who holds @ least 5% of OSC and voting rights

  3. and is an e’ee or officer of that co

  4. and conds (1)-(3) have applied for @ least 1 year prior to disposal

Tax deferral on share-for-paper exchange

 Also available for individuals

Pre-sale dividends vs ER/CGT

see if ER is available - if yes, always preferable

Otherwise calculate whether appropriate dividend tax rate is less than CGT for that tax bracket then conclude

nb. remember w/divs you need to gross up

Generally for pre-sale divs vs CGT: additional = bad idea, higher rate = good idea, basic rate = good idea

For buyer (corp or individual)

Sale is of shares (1) and either an corp/individual buyer (2)

  1. relevant taxes are Stamp Duty, VAT and SDLT clawback

Stamp Duty

 current rate is 0.5% unless transaction <1000

[VAT

 exempt supply for VAT purposes]

SDLT clawback

 can arise where T received land as a result of intra-group transfer and leaves group w/in 3 yr of receipt of that land

  1. calculated on the facts

  2. Exemptions - generally indemnities and warranties (used to flush out info)

  3. apply facts

  4. conclude

Asset Sale

Tax liabilities of T remain w/S so B is not concerned re finding out re any hidden tax liabilities

For corporate S:

Business sale (1) and corp S (2)

  1. relevant corp tax is either

income receipts/trading profits

trading stock

IP and goodwill (post April 2002)

capital receipts/chargeable gain

IP and goodwill (pre April 2002)

Land & property

Plant & Machinery

  1. calculated accordingly - both types are combined to create Total Taxable Profits (‘TTP’) and corp tax is paid on total sum

  2. exemptions

Trading profits

 balancing allowances (if T sold for less than tax written down value (‘TWDV’) a balancing (which can be a loss and used accordingly)

...

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