Guidance

Stamp Duty and Stamp Duty Reserve Tax: transfer schemes of arrangement and restructuring plans

Updated 7 January 2022

1. Overview

Companies Act regulations introduced from 4 March 2015 prevent the use of reductions in share capital in cancellation schemes of arrangement designed to implement company takeovers.

Companies effecting a takeover or merger must use a transfer scheme of arrangement or a contractual offer, on which stamp tax on shares is payable.

The term ‘stamp tax on shares’ is used to describe 2 types of transaction tax or duty on share transactions:

• Stamp Duty Reserve Tax (SDRT)
• Stamp Duty paid on transactions on paper

In both cases a tax or duty of 0.5% of the consideration is usually payable.

2. Background

Stamp tax on shares is ordinarily payable on purchases of shares in UK registered companies. This includes shares in connection with company takeovers. It’s paid at 0.5% of the consideration paid for the shares, on both a contractual offer and a transfer scheme.

It’s not payable on a cancellation scheme. This is because taxation of the new share issues and certain transactions deemed to be restructuring operations is prohibited by the EU Capital Duties Directive (2008/7/EC).

A scheme of arrangement is a High Court approved arrangement between a company and its shareholders and creditors provided for under Companies Act legislation (CA2006/Part 26). In the context of takeovers there were 2 main types of schemes of arrangement:

• cancellation scheme
• transfer scheme

2.1 Cancellation scheme

Under this scheme the court authorised the company to cancel its share capital, governed by part 17 of the Companies Act 2006, and issue new shares to different owners.

In a takeover this would be to the acquiring company who paid consideration to the target company shareholders in the form of cash, loan notes or newly-issued shares in the acquiring company.

As no existing registered shares were transferred there was no charge to Stamp Duty or SDRT under this type of scheme. Taxation of new issued shares is prohibited by the EU Capital Duties Directive (2008/7/EC).

2.2 Transfer scheme

Under a transfer scheme, shares in the target company held by its shareholders are transferred to the acquiring company.

The acquiring company pays consideration to the target company shareholders in the form of cash, loan notes or newly-issued shares in the acquiring company.

A stamp tax charge arises at 0.5% of the amount or value of the consideration paid for the transferred shares.

Stamp Duty is payable on the principal instrument giving effect to the scheme. The payment of Stamp Duty will cancel a SDRT obligation that may otherwise arise where no instrument of transfer gives effect to the scheme. A charge to SDRT at the rate of 0.5% arises whenever ‘chargeable securities’ (as defined in section 99 Finance Act 1986) are agreed to be transferred for consideration in money or money’s worth, the ‘relevant’ day for such charge generally being the day when the court order approving the scheme is filed with Companies House.

3. The change

The provisions of the Companies Act 2006 (Amendment of Part 17) Regulations 2015 (Statutory Instrument 2015/472) prohibits a company from reducing its share capital as part of a scheme of arrangement, where the purpose is to implement certain takeovers or mergers.

Companies effecting a takeover or merger will need to use a transfer scheme of arrangement or a contractual offer and stamp tax on shares is payable.

The change applies to court orders signed on and after 4 March 2015. But it does not affect takeovers where:

• an announcement concerning a firm intention to make an offer has been made before this date
• the terms of the offer have been agreed in the case of a company that’s not subject to the rules

3.1 Instruments

The principal instrument on which Stamp Duty is payable will depend on whether the scheme of arrangement expressly provides for a separate instrument to be executed in order to transfer the shares following on from the court order approving the scheme.

Where the scheme terms either make no reference to an instrument being executed to transfer the shares from the target shareholders to the acquiring company or specifically refers to the court order as the instrument of transfer, the scheme will rely on the court order in both approving and effecting the scheme. In these situations, the court order is regarded as the principal instrument for Stamp Duty purposes.

Where the scheme terms specifically require a separate instrument to be executed to transfer the shares following on from the court order approving the scheme, it is this instrument, rather than the court order, which is the principal instrument upon which Stamp Duty is payable. In this situation, the court order is outside the scope of Stamp Duty.

There is no mandatory requirement for instruments effected under a company takeover transfer scheme to be adjudicated by HMRC.

3.2 Process

In order to facilitate the delivery of the court order to Companies House, you should apply for confirmation from HMRC of whether the court order sanctioning the scheme of arrangement will be subject to Stamp Duty. In particular, where a court order will not be subject to Stamp Duty, Companies House may require evidence of that before they will accept it.

To apply, send a copy of the scheme particulars or proposed scheme document, together with a copy of the draft court order to sanction the scheme by email or post.

The email subject line or letter should be marked ‘Transfer Scheme of Arrangement’. HMRC will aim to respond within 15 working days. Our confirmation will be based on the draft documents you provide to us, and is therefore subject to any changes to those documents.

Where the terms of the scheme requires execution of an instrument of transfer, your application to the Stamp Office for confirmation that the court order is not subject to Stamp Duty must also include an undertaking to present the instrument to us along with payment of the relevant Stamp Duty due.

3.3 Schemes which require a separate instrument of transfer

If the scheme terms require a separate instrument HMRC will issue a letter to confirm that the court order will not be subject to Stamp Duty. In this situation:

• the letter should be presented to Companies House with the court order
• when the principal instrument of transfer is sent by email to the Stamp Office for processing, a copy of the court order approving the scheme and bearing the original court stamp must be sent to us at the same time
• failure to present the instrument of transfer to the Stamp Office may give rise to a charge to SDRT and if the failure continues on or after the SDRT accountable date interest and penalties may be imposed if SDRT has not been paid — the SDRT accountable date is the seventh day of the month following the ‘relevant day’ (which is generally the day when the court order approving the scheme is filed with Companies House)
• all Stock Transfer Forms and instruments of transfer emailed to us with the correct information included will then be processed and a letter confirming that Stamp Duty has been paid will be issued
• if you cannot submit the scheme of arrangement documents electronically, you may post them to us — you must not post original copies of documents as HMRC will not retain or return them to you

3.4 Schemes which do not require a separate instrument of transfer

If the scheme terms do not require a separate instrument HMRC will issue a letter to confirm that the court order will be subject to Stamp Duty. In this situation:

• when the court hearing has taken place, a copy of the original court order approving the scheme and bearing the original court stamp should be sent by email, together with payment being made of ad valorem Stamp Duty — all payments should be made electronically, find out how to pay Stamp Duty
• HMRC will follow the same process using the court order as for the instrument of transfer
• the court order or a certified copy of the court order along with the confirmation letter from HMRC can then be delivered to Companies House
• if you cannot submit the scheme of arrangement documents electronically, you may post them to us — you must not post original copies of documents as HMRC will not retain or return them to you

3.5 Schemes other than a company takeover

These Companies Act Regulations do not prohibit schemes which involve a company share capital reduction other than in a takeover or merger involving independent parties.

Where a court order is required to sanction a scheme other than a company takeover and the scheme and court order is eligible for Stamp Duty exemption or relief, the court order still needs to be presented to, and assessed by, HMRC. If the instrument can be self-certified HMRC will confirm the exemption in writing.

If a relief or exemption provision applies to the scheme and court order, the court order will be subject to compulsory adjudication and the relief or exemption must be applied for.

You should present copies of all the documents in advance of the court hearing to give HMRC time to consider them on an informal basis and give opinion on the availability of relief or exemption.

It’s important to bear in mind that this will only be an opinion to the effect that relief may be available. This should not be assumed as a final clearance regarding the transaction. Final clearance can only be given once the court order is presented and adjudicated.

3.6 Restructuring plans under Part 26A of the Companies Act 2006

The Corporate Insolvency and Governance Act 2020 introduced a new procedure, known as the restructuring plan procedure, under Part 26A of the Companies Act 2006.

The restructuring plan procedure is similar to the process that exists for schemes of arrangement. The main difference is the new plan can bind dissenting classes of either creditors or shareholders or both, providing they will not be worse off in comparison with other options.

Read further information about restructuring plans.

3.7 Confirmation of whether a court order is subject to Stamp Duty

As with schemes of arrangement, in order to facilitate the delivery of the court order sanctioning the restructuring plan to Companies House, you should apply for confirmation from HMRC of whether the court order sanctioning a restructuring plan will be subject to Stamp Duty.

To apply, send a copy of the restructuring plan particulars or proposed restructuring plan document, together with a copy of the draft court order to sanction the restructuring plan by email.

The email subject line and letter should be marked ‘Restructuring Plan’. HMRC will aim to respond within 15 working days.

The HMRC confirmation will be based on the draft documents you provide and is therefore subject to any changes to those documents.

If the court order is not subject to Stamp Duty HMRC will issue a letter by email to confirm this. The letter should be presented to Companies House with the court order.

Where a court order would be subject to Stamp Duty but is eligible for Stamp Duty exemption or relief, the court order still needs to be presented to, and assessed by, HMRC. If the instrument can be self-certified HMRC will confirm the exemption in writing.

If a relief or exemption provision applies to the court order, the court order will be subject to compulsory adjudication and the relief or exemption must be applied for.

You should present copies of all the documents in advance of the court hearing to give HMRC time to consider them on an informal basis and give opinion on the availability of relief or exemption.

It’s important to bear in mind that this will only be an opinion to the effect that relief may be available. This should not be assumed as a final clearance regarding the transaction — this can only be given once the court order is presented and adjudicated.

if you cannot submit your notification electronically, you may post it to us — you must not post original copies of documents as HMRC will not retain or return them to you.

3.8 Instruments of transfer other than the court order

The HMRC confirmation will only apply to the registration of the actual court order. It will not extend to any separate agreements or instrument of transfer pertaining to transfers on sale of stocks, shares or marketable securities which may arise subsequent to or indirectly in connection with the restructuring plan. Any such instruments will need to be sent to HMRC:

• when the instrument of transfer is sent by email to HMRC for stamping, a copy of the court order approving the restructuring plan and bearing the original court stamp must be sent to us at the same time

• failure to present the instrument of transfer to HMRC may give rise to a charge to SDRT and if the failure continues on or after the SDRT accountable date interest and penalties may be imposed if SDRT has not been paid — the SDRT accountable date is the seventh day of the month following the ‘relevant day’ (which is generally the day when the court order approving the restructuring plan is filed with Companies House)

• all Stock Transfer Forms and instruments of transfer emailed to HMRC with the correct information included will be processed and a letter confirming that Stamp Duty has been paid will be issued

• if you cannot submit the instrument of transfer and copy of the court order electronically, you may post them to us — you must not post original copies of documents as HMRC will not retain or return them to you

If a relief or exemption provision applies (and the instrument cannot be self-certified) the relief or exemption must be applied for using the temporary process that has been put in place for reliefs and exemptions.