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Tax Notes

LPC Law Notes > Private Acquisitions Notes

This is an extract of our Tax document, which we sell as part of our Private Acquisitions Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.

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Tax Type of tax Corp tax on trading profits Corp tax on chargeable gains Income Tax CGT VAT Stamp Duty SDLT
[SDLT clawback]
De-grouping charges (1) (2) (3) (4) (5) (6) (7)

Individual/Corp?
Corp

Seller/Buyer?
Seller

Share/Asset?
Share or Asset

Corp

Seller

Share or Asset

Individual

Seller

Share or Asset

Individual

Seller

Share or Asset

Individual or Corp

Seller or Buyer

Business (TOGC)

Individual or Corp

Buyer

Share

Individual or Corp

Buyer

Share or Asset

Individual or Corp

Target (indirectly B)

Share or Asset

Corp

Seller

Share

Structure for approaching tax q: is scenario share sale or business sale?
who is receiving cons/is prima facie chargeable for tax?
what tax(es) will be payable?
how is it/are they calculated? (nb. you won't actually have to calculate but useful notionally) are there any exemptions or reliefs (ie. can any tax be mitigated/ reduced/ extinguished?) apply any test(s) relevant to exemptions or reliefs to the facts 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. (3) Main tax will always be corporation tax. (4) Tax will be calculated on the chargeable gain made on the disposal of shares (5) Exemptions Main one - v imp: 'SSE' - Substantial 3 x conds Shareholding 1. selling co must hold least 10% of T's share capital Exemption 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

If SSE not available, this may be if cons is in form of paper Tax deferral on 2 x conds share-for-paper1. B must hold, or as a result of exchange, will hold over 25% of T's exchange 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:

3. 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'

- in form of loan notes = 'Holdover'

SSE and share-forpaper exchange Pre sale dividend

(6) (7)

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 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 PS300 and sold it for PS350 of LNs to a B, when the S redeems his LNs he will owe corp tax on his chargeable gain on PS50). 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. 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. 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.

Apply to facts Conclude

By individual Seller As above, (1) and (2) (3) relevant tax = Capital Gains Tax (4) calculated on chargeable gain on PS1 million (5) Exemptions

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