4. SHARE SALE TAX ISSUES
CORPORATE SELLER (CS)
potential liability to corporation tax on the chargeable gain arising from sale of the shares
SUBSTANTIAL SHAREHOLDING EXEMPTION (SSE) shares only
To Qualify:
1. Company held ≥ 10% of ordinary share capital for ≥ 12 consecutive months in the
6-year period before disposal; and
2. Company whose shares are being sold is a trading company / holding company of
trading group / sub-group throughout the period from the beginning of the 12-month
period until the date of sale
o Trading company / group = carrying on trading activities which do not include to a
substantial extent activities other than trading activities
Substantial = (> 20%)
Trading Activities = carried on in course of/for purposes of/ in prep for a
trade carried on by member of group/subgroup (excludes investment co.)
Satisfied = any gain on share sale NOT treated as a chargeable gain so NO corporation tax
payable by CS
o Any loss is not allowable loss for corporation tax purposes
Where either:
a) disposal is to a connected person (defined for tax purposes in s.1122 CTA 2010)
or
b) the trade has been transferred into a new company within previous 12mos
the co. whose shares are being sold must continue to be a trading co. (or holding co. of a
trading group or sub-group) immediately after the sale of the shares.
Hive down – co. transfers assets to newly incorporated sub + sells shares in sub i.e.
restructures business sale into share sale
o SSE applies where S has not held shares for ≥ 12 months, provided hived-down
assets previously used by S / group co. in trade
If conditions for SSE satisfied then no chargeable gain arises on sale of shares for S, EVEN
IF consideration in paper form (shares/loan notes)
o NO benefit is derived from tax deferral on share-for-paper exchange
If conditions for SSE satisfied then pre-sale dividend has no advantage (no tax liability
anyway)
, Tax deferral on share-for-paper exchange (S-4-P-X) (ROLLOVER / HOLDOVER RELIEF)
s.135 Taxataion of Chargeable Gains Act 1992 (TCGA)
Consideration may not be in form of cash – B may issue Shares or loan notes to S
if SSE not available, S may defer tax where:
1) Share Sale;
2) B holds, or as a result of exchange, will hold > 25% of T’s ordinary share capital;
3) Bona fide commercial reason for structuring the payment in shares/loan notes;
o i.e. B lacks cash so could only finance through shares/loan notes
4) not part of tax avoidance scheme
5) If Loan note - not redeemable until ≥ 6 months after their date of issue
o Any earlier, HMRC view as if consideration had been cash
Advance Clearance (AC) - May apply for AC from HMRC by giving full details of proposed
transaction
o Will grant if satisfied that paper issued as consideration for bona fide commercial
reason
o BUT does not guarantee relief, just that HMRC will not refuse on these grounds
App. must be made by T or B, even though benefits S
Effect of Consideration as Shares - ROLLOVER RELIEF
= S not treated as disposing of shares in T so no tax payable on T’s shares – instead, S
deemed to acquire shares in B @ same time + price as original shares in T
o Postpones S’s tax liability on sale of T’s shares until it sells shares issued by B
o S’s chargeable gain/loss for tax purposes calculated as difference between amount
paid for T’s shares and amount it sells shares issued by B
i.e. value of T’s shares on date of share sale irrelevant
Typically, S willing to accept shares as consideration if B is a listed co.
Base cost of shares issued as consideration = market value at date of issue
Effect of Consideration as Loan Notes - HOLDOVER RELIEF
= tax on any gain deferred until loan notes redeemed, sold or otherwise disposed of
o Suspends tax liability until loan notes redeemed
o S liable for gain/loss on redemption of loan notes (difference between original value
of loan notes and the value on redemption)
Typically S will accept loan notes if supported by guarantee from bank or security over B’s
assets
Pre-sale Dividend (PSD)
T declares PSD = effect of stripping some value out of T = less consideration paid by B =
reduced chargeable gain for S on the share sale = makes T more affordable
companies do not pay corporation tax on dividends received so PSD will be received tax-
free, reducing overall corporation tax liability
PSD only possible where there are sufficient distributable profits (s. 830 CA)
CHECK T’s balance sheet for these
CORPORATE SELLER (CS)
potential liability to corporation tax on the chargeable gain arising from sale of the shares
SUBSTANTIAL SHAREHOLDING EXEMPTION (SSE) shares only
To Qualify:
1. Company held ≥ 10% of ordinary share capital for ≥ 12 consecutive months in the
6-year period before disposal; and
2. Company whose shares are being sold is a trading company / holding company of
trading group / sub-group throughout the period from the beginning of the 12-month
period until the date of sale
o Trading company / group = carrying on trading activities which do not include to a
substantial extent activities other than trading activities
Substantial = (> 20%)
Trading Activities = carried on in course of/for purposes of/ in prep for a
trade carried on by member of group/subgroup (excludes investment co.)
Satisfied = any gain on share sale NOT treated as a chargeable gain so NO corporation tax
payable by CS
o Any loss is not allowable loss for corporation tax purposes
Where either:
a) disposal is to a connected person (defined for tax purposes in s.1122 CTA 2010)
or
b) the trade has been transferred into a new company within previous 12mos
the co. whose shares are being sold must continue to be a trading co. (or holding co. of a
trading group or sub-group) immediately after the sale of the shares.
Hive down – co. transfers assets to newly incorporated sub + sells shares in sub i.e.
restructures business sale into share sale
o SSE applies where S has not held shares for ≥ 12 months, provided hived-down
assets previously used by S / group co. in trade
If conditions for SSE satisfied then no chargeable gain arises on sale of shares for S, EVEN
IF consideration in paper form (shares/loan notes)
o NO benefit is derived from tax deferral on share-for-paper exchange
If conditions for SSE satisfied then pre-sale dividend has no advantage (no tax liability
anyway)
, Tax deferral on share-for-paper exchange (S-4-P-X) (ROLLOVER / HOLDOVER RELIEF)
s.135 Taxataion of Chargeable Gains Act 1992 (TCGA)
Consideration may not be in form of cash – B may issue Shares or loan notes to S
if SSE not available, S may defer tax where:
1) Share Sale;
2) B holds, or as a result of exchange, will hold > 25% of T’s ordinary share capital;
3) Bona fide commercial reason for structuring the payment in shares/loan notes;
o i.e. B lacks cash so could only finance through shares/loan notes
4) not part of tax avoidance scheme
5) If Loan note - not redeemable until ≥ 6 months after their date of issue
o Any earlier, HMRC view as if consideration had been cash
Advance Clearance (AC) - May apply for AC from HMRC by giving full details of proposed
transaction
o Will grant if satisfied that paper issued as consideration for bona fide commercial
reason
o BUT does not guarantee relief, just that HMRC will not refuse on these grounds
App. must be made by T or B, even though benefits S
Effect of Consideration as Shares - ROLLOVER RELIEF
= S not treated as disposing of shares in T so no tax payable on T’s shares – instead, S
deemed to acquire shares in B @ same time + price as original shares in T
o Postpones S’s tax liability on sale of T’s shares until it sells shares issued by B
o S’s chargeable gain/loss for tax purposes calculated as difference between amount
paid for T’s shares and amount it sells shares issued by B
i.e. value of T’s shares on date of share sale irrelevant
Typically, S willing to accept shares as consideration if B is a listed co.
Base cost of shares issued as consideration = market value at date of issue
Effect of Consideration as Loan Notes - HOLDOVER RELIEF
= tax on any gain deferred until loan notes redeemed, sold or otherwise disposed of
o Suspends tax liability until loan notes redeemed
o S liable for gain/loss on redemption of loan notes (difference between original value
of loan notes and the value on redemption)
Typically S will accept loan notes if supported by guarantee from bank or security over B’s
assets
Pre-sale Dividend (PSD)
T declares PSD = effect of stripping some value out of T = less consideration paid by B =
reduced chargeable gain for S on the share sale = makes T more affordable
companies do not pay corporation tax on dividends received so PSD will be received tax-
free, reducing overall corporation tax liability
PSD only possible where there are sufficient distributable profits (s. 830 CA)
CHECK T’s balance sheet for these
