HMRC SDLT: Hive-out and Sale of Transferor: Yellow Acorn’s Acquisition of Gold Nutmeg Shares

Example 4 – Hive-out and Sale of Transferor

This example illustrates a scenario where Yellow Acorn Limited aims to buy shares in Gold Nutmeg Limited, which owns multiple properties. Yellow Acorn Limited is only interested in a subset of these properties. To facilitate this, Gold Nutmeg Limited transfers the unwanted properties to its parent company before the share purchase. The transaction does not trigger Section 75A, as the share purchase is not connected to the property distribution.

  • Yellow Acorn Limited wants to acquire shares in Gold Nutmeg Limited, which owns 15 properties.
  • Only 5 specific properties are of interest to Yellow Acorn Limited.
  • Gold Nutmeg Limited transfers the other 10 properties to its parent company.
  • The share purchase by Yellow Acorn Limited does not involve Section 75A.
  • Section 75A applies when a chargeable interest is disposed of and acquired by different parties.
  • The principles remain the same if the property transfer involved consideration with group relief claimed.

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Example of Hive-Out and Sale of Transferor: SDLTM09410

This example was introduced on 14 May 2021 to illustrate the relationship between property transfers, share purchases, and the relevant stamp duty implications.

Scenario Overview

Yellow Acorn Limited wants to buy all the shares of Gold Nutmeg Limited. Gold Nutmeg Limited owns 15 different properties. However, Yellow Acorn Limited is only interested in 5 specific properties from that portfolio. To move forward with the purchase, Gold Nutmeg Limited first needs to manage its property assets.

Distribution of Properties

  • Gold Nutmeg Limited decides to transfer the 10 properties that Yellow Acorn Limited does not want to its parent company.
  • Once this transfer is complete, Yellow Acorn Limited buys all the shares of Gold Nutmeg Limited and pays the applicable Stamp Duty on this share acquisition.

Understanding Section 75A of the Legislation

To understand the potential implications of this transaction, we need to look at how Section 75A of the legislation works. This section is important when assessing whether certain transactions are linked and how they affect taxation.

  • Section 75A deals with situations where one person, referred to as V, disposes of a chargeable interest (in this case properties) and another person, referred to as P, acquires it or a related interest.
  • In our example, the chargeable interests involved are the 10 properties that Gold Nutmeg Limited transfers to its parent company.

Key Points about the Transaction

  • Only the 10 properties that Gold Nutmeg Limited delivers to its parent company are chargeable interests.
  • The later action of Yellow Acorn Limited purchasing shares in Gold Nutmeg Limited does not connect to the property transactions of the 10 properties.
  • As a result, there are no linked transactions under Section 75A(1)(b). This means the share purchase does not influence any stamp duty obligations related to the transfer of the properties.

Consideration and Group Relief

It’s essential to note that the same principles would apply even if the properties were transferred from Gold Nutmeg Limited to its parent for payment (consideration). However, if the parent company claimed group relief under Schedule 7 for this transfer, it would still not affect the stamp duty consequences related to the share purchase.

Conclusion of Key Ideas

This example demonstrates how strategic asset distribution by a company—like transferring unneeded properties to its parent—can influence the tax landscape when it comes to share purchases. Understanding the separation of these transactions is critical for determining the correct stamp duty obligations.

These principles help ensure that companies do not face unexpected tax implications during acquisitions, safeguarding their financial planning. Understanding Section 75A is particularly valuable in navigating these kinds of transactions.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Hive-out and Sale of Transferor: Yellow Acorn’s Acquisition of Gold Nutmeg Shares

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Written by Land Tax Expert Nick Garner.
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