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HMRC internal manual

Stamp Taxes on Shares Manual

HM Revenue & Customs
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Exemptions and reliefs: reliefs: stamp duty group relief - loss of beneficial ownership

The beneficial ownership of shares passes to the purchaser when a contract for sale is made. Once a body corporate contracts to sell its shares in a subsidiary to an outsider the associated status between the parent and its subsidiary has ended. It is possible for the beneficial ownership of shares to be lost before a formal contract is made for the transfer of the shares. This may happen where the nature of an agreed arrangement is such that the first step towards its implementation means that all further steps, including the sale of the shares, are bound to take place (Leigh Spinners v IRC [1956] 46 TC 425).

It has also been held that the beneficial ownership of shares in a subsidiary was lost when an agreement was entered into by an agent on behalf of the directors and shareholders of the parent company (Holmleigh (Holdings) Ltd v IRC [1958] 46 TC 435). In another case it was held that, as it was clear from an agreement that the shares in question were committed to be allotted to outsiders (and the outsiders in question were not party to the agreement), they were not beneficially owned by the claimant (Baytrust Holdings v IRC, Thomas Firth and John Brown (Investments)Ltd v IRC[1971] 3 All ER 76).

A parent company may cease to be the beneficial owner of shares if it grants an option to an outsider to purchase those shares, especially if the option is binding and/or the parent undertakes not to exercise the rights attached to the shares during the option period. It is also considered that a parent company ceases to be associated with a 100% subsidiary if it grants an option to an outsider to purchase an equal number of new shares so that the subsidiary is owned equally by them, and the parent can thus no longer give good title to a prospective purchaser of 75% or more of the shares in the subsidiary.