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HMRC internal manual

Stamp Taxes on Shares Manual

Exemptions and reliefs: reliefs: company reconstructions and acquisitions - Section 77 - conditions for relief

Section 77 provides relief from transfer on sale duty for documents transferring shares in one company (the target company) to another company (the acquiring company). The conditions for the relief are as follows.

  • The transfer must form part of an arrangement by which the acquiring company acquires the whole of the issued share capital of the target company.
  • The consideration for the acquisition must consist only of the issue of shares in the acquiring company.
  • The shares must only be issued to the shareholders of the target company.
  • The acquisition must be effected for bona fide commercial reasons, and it must not be part of a scheme or arrangement a main purpose of which is the avoidance of certain taxes.
  • The shareholders of the acquiring company after the acquisition must be the same as those of the target company immediately before the acquisition.
  • Their proportions of shareholdings in the two companies must be the same (or as nearly as may be the same).
  • The classes of shares in the two companies must be the same.
  • The proportions of shares of any class in the acquiring company must be identical to those of the same class in the target company.
  • At the time the instrument mentioned in s77(1) is executed there are no disqualifying arrangements.  Further information can be found at STSM042460.

Section 77 gives a very limited narrow relief; its conditions are stringent and are strictly enforced. For the purposes of section 77, references to “shares” or “share capital” include references to “stock” as defined at section 122 of the Stamp Act 1891, even if the “stock” is itself exempt from stamp duty. There is more information at STSM042415.

Single Bid

The context of the phrase ‘whole of the issued share capital’ means that the relief is given only where there is a single bid for the entire share capital of the target company. Relief is not given therefore if the acquiring company already held shares in the target company.

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Issue of Shares to Target Company Shareholders

The consideration shares must be issued (mere allotment is not sufficient) to all the shareholders of the target company. Shares registered in the name of a nominee of a shareholder of the target company are not accepted as having been issued to the shareholder. See STSM042400.

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Class of Shares

The term class of share concerns the rights attaching to the shares and not simply the descriptions of the shares. The question of whether one share is within a class different from that of another share depends upon whether the rights attached to the two classes of share are different. Details of a company’s share and their rights are to be found in the company’s Memorandum and Articles of Association.