The case of Peter Hadfield -v- HMRC [2010] UKFTT 261
serves as a reminder of the strict terms of share for share
exchange CGT relief. Under s.135 TCGA 1992, where one company
issues shares or debentures in exchange for shares or debentures of
another company then this will be treated as not giving rise to a
disposal provided certain other conditions are satisfied which are
not relevant to the issue contested in this case.
Mr Hadfield had accepted an "exchange offer" by Royal Dutch Shell
(RDS) of two "A Shares" for every share in Royal Dutch Petroleum
Company (RD). The consideration for the share exchange was
satisfied by a declaration of trust over "A Shares" in RDS by a
newly created SPV company. The tribunal concluded that this was not
an issue of shares within the meaning of the requirement in s.135
TCGA 1992.
This case serves as a reminder that the strict technical
requirements of s.135 TCGA 1992 need to be met to qualify for share
for share exchange relief on a share exchange. Particular care
needs to be taken to ensure these rules are fully satisfied in
transactions involving management shareholders exchanging
shareholdings in a target company for shareholdings in the new top
holding company of the group. A direct issue of shares by the top
holding company cannot qualify for this relief if the acquiring
company is a subsidiary of the top holding company. Often these
transactions are structured so that the share exchange takes place
in a "roll-up transaction" by way of a sequence of steps, but such
arrangements need to be structured to ensure the management
shareholders acquire beneficial ownership of the shares issued at
each step.
Please click on the links below for the other articles in
the July 2010 tax newsletter.
Contacts
John Watson
T: +44 (0)20 7859 1308
E: john.watson@ashurst.com
Richard Palmer
T: +44 (0)20 7859 1289
E: richard.palmer@ashurst.com
Ian Johnson
T: +44 (0)20 7859 1304
E: ian.johnson@ashurst.com
Alexander Cox
T: +44 (0)20 7859 1541
E: alexander.cox@ashurst.com
Paul Miller
T: +44 (0)20 7859 1786
E: paul.miller@ashurst.com
Simon Swann
T: +44 (0)20 7859 1882
E: simon.swann@ashurst.com
This newsletter is not intended to be a comprehensive review of
all developments in the law and practice, or to cover all aspects
of those referred to. Readers should take legal advice before
applying the information contained in this publication to specific
issues or transactions.