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Readers' Forum
Replies to Queries — 3
Shuffling shares
I have recently obtained clearance from the Inland Revenue to carry out a share-for-share exchange in order to create a group structure. However, one of the subsidiaries also has a wholly-owned subsidiary of its own, which I would like to transfer to the newly formed parent company by obtaining a similar clearance.
Readers' Forum
Replies to Queries — 3
Shuffling shares
I have recently obtained clearance from the Inland Revenue to carry out a share-for-share exchange in order to create a group structure. However, one of the subsidiaries also has a wholly-owned subsidiary of its own, which I would like to transfer to the newly formed parent company by obtaining a similar clearance.
I should be grateful if readers could advise me on how to go about transferring the shares from the subsidiary to the parent company; i.e., the clearance procedure required.
Would there be any tax consequences in transferring the shares to the parent company, and how would the new acquisition be shown from an accounting perspective in the parent company and from a tax perspective?
Readers' comments would be very much appreciated.
(Query T16,522) — Kar.
The sale or transfer of the shares in the subsidiary from the subsidiary to the holding company will not require any form of clearance. This is not a share for share exchange, just the transfer of a share holding from one company to another.
The companies are within a group. Although we are told that the sub-subsidiary is wholly owned by the subsidiary, we are not told what percentages of the shares in the subsidiary are held by the holding company. Provided the subsidiary is a 75% subsidiary of the holding company as defined in TA 1988, s 838, no capital gain arises on the transfer of the shares by virtue of TCGA 1992, s 171. The transaction is deemed to take place at a value so that neither a gain nor a loss arises on the disposal.
If the transaction was enacted as a share for share exchange, s 171 would not apply. However, a share for share exchange would not apply in this case, because it would result in the subsidiary holding shares in its holding company. If it is not a 75% subsidiary, there will be a disposal for CGT by the subsidiary.
'Kar' should also note that if the subsidiary company is a 75% subsidiary, the transfer of the shares will not give rise to a stamp duty charge, as it will qualify for group relief under FA 1930, s 42. However, group relief would be denied if there was an intention, at the time of the share transfer, for the sub-subsidiary to be sold on so as to leave the group.
From a practical perspective, a stock transfer form will be required. In terms of accounts, the sub-subsidiary will now become a subsidiary and so be included within investments in fixed assets at the agreed cost. The other half of the transaction may be the payment of cash to the subsidiary or it may be that the consideration is to be left outstanding on inter-company loan account.
The only other point for 'Kar' to note is TCGA 1992, s 179, which applies where a company acquires an asset from a group company and the recipient company leaves the group within six years of that transfer. The holding company would be deemed to have sold and immediately reacquired the shares in the sub-subsidiary at market value. This could apply if the holding company was to sell the subsidiary that is selling the shares, because it would not then be in the same group as the holding company. The resultant gain or loss is deemed to arise in the accounting period in which the holding company is no longer in a group structure with the subsidiary.
