HMRC SDLT: Company Share Purchase and Property Distribution: Section 75A Tax Implications Explained

Company Purchase and De-Envelope: Example 1

This example illustrates a scenario where Todderick buys all shares in Galactus Five Limited, a company owning three properties in London. After acquiring the company, Todderick transfers the properties to his direct ownership, leaving the company dormant. The transactions involved do not trigger Section 75A due to specific provisions that exclude certain transactions from consideration.

  • Todderick acquires all issued shares in Galactus Five Limited.
  • The company owns three debt-free properties in London.
  • Properties are transferred to Todderick’s direct ownership post-acquisition.
  • Galactus Five Limited becomes dormant with no further transactions planned.
  • Section 75A is not applicable due to the exclusion of the initial share acquisition.
  • Only one relevant transaction remains, failing the test at s75A(1)(b).

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Overview of Company Purchase and De-Enveloping: SDLTM09380 – Example 1

This example was added on 14 May 2021 and illustrates a situation involving Todderick and the acquisition of a company that owns properties.

Scenario Details

In this scenario, we have Todderick, who purchases all the shares in a company called Galactus Five Limited. This company owns three properties located in London. At the time of this purchase, these properties do not have any debts attached to them.

Transaction Process

  1. Purchase of Shares: Todderick acquires all issued shares in Galactus Five Limited.
  2. Distribution of Properties: After taking ownership of the company, Todderick proceeds to distribute the properties, transferring them directly into his own name.
  3. No Future Transactions: No other transactions occur once the properties are moved to Todderick’s ownership, and Galactus Five Limited remains inactive, or ‘dormant.’

Understanding Section 75A

Section 75A of the legislation is important when considering the implications of this transaction. Here’s what it means:

  • Definition: Section 75A looks at multiple transactions to determine potential tax obligations or impacts, primarily concerning the disposal and acquisition of properties.
  • Initial Transaction Ignored: In this specific case, the first action—Todderick’s purchase of the shares—is classified as a scheme transaction. However, due to Section 75C(1), this transaction is ignored when evaluating Section 75A.

What Happens Next?

After ignoring the purchase of the shares, there is only one significant transaction left to consider:

  • Distribution of Properties: The only relevant transaction remaining is the distribution of properties from Galactus Five Limited to Todderick.

Testing Under Section 75A(1)(b)

In assessing whether multiple transactions are present, we focus on the test stated in Section 75A(1)(b).

  • Requirement of Multiple Transactions: This section requires the existence of a ‘number of transactions’ that connect to the disposal and acquisition of properties.
  • Conclusion Based on Transactions: Since there was only one transaction (the distribution of the properties) after ignoring the purchase of shares, the criteria under Section 75A(1)(b) is not satisfied.

Key Takeaways

This scenario stresses the importance of understanding how transactions are classified and the implications of various sections of tax legislation.

  • Company Purchase and Property Transfer: When a company is purchased primarily to transfer its assets (like properties) to a new owner, careful consideration of tax obligations and relevant legislation is required.
  • Single Transaction Implications: In cases like this, where the total number of relevant transactions is limited, certain tax sections may not apply, simplifying the assessment process.

For more information about how section 75A and similar regulations might affect your circumstances, please consult a tax professional or visit the HMRC website for detailed guidance.

Relevant Links

For further information on this section and its applications, you can visit our page here: SDLTM09380 – Example 1 – company purchase and de-envelope.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Company Share Purchase and Property Distribution: Section 75A Tax Implications Explained

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