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HMRC internal manual

Stamp Taxes on Shares Manual

Exemptions and Reliefs: reliefs: company reconstructions and acquisitions - Section 77 - “shares” or “share capital” includes “stock”

Included within the relief conditions is the requirement that the acquiring company acquires the whole of the issued share capital of the target company.

In section 77 (4) Finance Act 1986, references to ‘shares’ or ‘share capital’ includes references to ‘stock’.

For the purposes of section 77(4), ‘stock’ is defined by section 114(4) Finance Act 1986 as the meaning within section 122 of the Stamp Act 1891.

In addition to shares or share capital, section 122 defines ‘stock’ as including funded debt of any county council, corporation, company, or society in the United Kingdom, or of any foreign or colonial corporation, company, or society.

While not defined in the Stamp Act 1891, funded debt is regarded by Stamp Taxes as longer-term capital financing that might substitute for equity funding in some companies. In this situation funded debt for stamp duty purposes means ‘debt instruments’ issued by the target company such as bonds and loan notes (irrespective of whether the note is exempt or chargeable to stamp tax if transferred independently) which can be traded separately in a manner akin to that of equities.

We would not expect ‘funded debt’ to include mortgages, bank loans, financing and overdrafts within the meaning because these are not normally issued and tradable instruments with the capital characteristics of equity. In these circumstances, we do not consider such debt to come within the definition of ‘stock’ as ‘issued funded debt’ by a target company. Consequently there is no requirement for such debt to be transferred (along with shares) by the target company [and no requirement for the acquiring company to issue mirroring debt instruments] as a condition to obtaining relief under section 77.

That said, we must always be minded of what contracts actually say and we would not want to offer a list of ‘what is in and what is out’ as each transaction must be considered dependent on the facts.  You should contact Stamp Taxes to seek assistance where the exact form of debt or stock issued by the target company is not as described above.