Tax on corporate transactions in UK (England and Wales): overview

A Q&A guide to tax on corporate transactions in the UK (England and Wales).

This Q&A provides a high level overview of tax in the UK (England and Wales) and looks at key practical issues including, for example, the main taxes, reliefs and structures used in share and asset sales, dividends, mergers, joint ventures, reorganisations, share buybacks, private equity deals and restructuring and insolvency.

To compare answers across multiple jurisdictions, visit the Tax on Corporate Transactions: Country Q&A tool.

This Q&A is part of the global guide to tax on transactions. For a full list of jurisdictional Q&As visit

Dr Clifford J Frank, LEXeFISCAL LLP

Tax authorities

1. What are the main authorities responsible for enforcing taxes on corporate transactions in your jurisdiction?

HM Revenue & Customs (HMRC) ( is responsible for the enforcement of all tax legislation in the UK.


Pre-completion clearances and guidance

2. Is it possible to apply for tax clearances or obtain guidance from the tax authorities before completing a corporate transaction?

Statutory clearances

HMRC will provide statutory clearance to specific transactions or areas of law involving a particular statutory provision, or the tax treatment on a particular transaction that has been carried out, or is intended to be carried out. For example, clearance can be given on the transfer of a trade, international movement of capital, or demergers.

Non-statutory clearances

Before completing a corporate transaction, an application for non-statutory clearances is available from HMRC. However, a check should be carried out to ensure that the transaction is not covered by a more appropriate clearance or approved route, and a review of HMRC's guidance on non-statutory clearances should also be carried out, as that may provide an answer to the question.

It is also possible to obtain from HMRC a pre-Advance Pricing Agreement (APA) under section 218 of the Taxation (International and Other Provisions) Act 2010 (TIOPA). An APA is a written agreement between the taxpayer and HMRC determining the method for resolving transfer pricing, which is issued before a tax return is made.

Is clearance binding?

Clearance or guidance received from HMRC is binding on HMRC, if, and only if, the transaction carried out is exactly as that detailed in the application made to HMRC, pre-full disclosure: the taxpayer can then rely upon that advice.


Disclosure of corporate transactions

3. Is it necessary to disclose the existence of any corporate transactions to the tax authorities?

Circumstances where disclosure is required

A tax arrangement may need to be disclosed, even if HMRC is already aware of it or it is not considered avoidance, where:

  • It is considered that the transaction will, or might be expected to, enable any person to obtain a tax advantage.

  • That tax advantage is, or might be expected to be, the main benefit, or one of the main benefits, of the arrangement.

  • It is a hallmarked scheme by being a tax arrangement that falls within any description (the "Hallmarks") prescribed in the relevant regulations (section 306, Finance Act 2004, and Regulation 7, The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006).

Manner and timing of disclosure

Where disclosure is required, it must be made by the scheme promoter within five days of one of the trigger events, using form AAG 1.

However, the scheme user may need to make the disclosure where:

  • The promoter is based outside the UK (form AAG 2).

  • The promoter is a lawyer and legal professional privilege prevents him from providing all or part of the prescribed information (form AAG 3).

  • There is no promoter (self-designed and implemented scheme), and in such a case disclosure must be made within 30 days of implementation (form AAG 3).

Disclosure is made by completing and filing the forms listed in brackets above. Further details can also be provided on a continuation sheet (form AAG 5).


Main taxes on corporate transactions

Transfer taxes and notaries' fees

4. What are the main transfer taxes and/or notaries' fees potentially payable on corporate transactions?

Stamp duty (SD)

First imposed in 1694, as a tax on documents, SD is the oldest tax administered by HMRC. It is charged on instruments transferring stock and marketable securities, and interest in partnerships that hold stocks as partnership property. SD now principally is payable on the transfer of shares by way of a stock transfer form (form J30), calculated at a rate of 0.5%, subject to a minimum charge of GB£5.00 (only if the consideration payable is in excess of GB£1,000).

Chargeable consideration for SD is:

  • Cash.

  • The issue or transfer of shares or marketable securities.

  • The release or assumption of a liability.

Because SD is a tax on a document, if a document does not exist no SD is payable. SD is therefore a voluntary tax.

Stamp duty reserved tax (SDRT)

Stamp duty reserve tax (SDRT) is payable on the purchase of shares. A charge to SDRT is payable under section 87 of the Finance Act 1986 when an agreement to transfer chargeable securities is made for consideration in money or money's worth. SDRT applies wherever the parties are resident and whenever the agreement is entered into. In practice, where SD is payable, SDRT does not need to be paid. A charge to SDRT will frequently arise in the following circumstances:

  • A taxpayer transfers chargeable securities in an uncertificated form, within an electronic transfer system (for example, by using CREST, the electronic settlement and registration system administered by Euroclear).

  • A taxpayer buys a certificated security and resells it before settlement of the purchase (trading within an account bed and breakfast transactions).

  • A taxpayer buys renounceable letters of allotment.

  • A taxpayer buys shares registered in the name of a nominee who acts for both buyer and seller.

  • A taxpayer transfers securities to an electronic transfer system on the occasion of their sale, or the shares are held in dematerialised from.

SDRT is charged at 0.5% if the transaction is over GB£1,000. Unlike SD there is no requirement to round up the SDRT payable to GB£5.00, and therefore it is payable to the nearest penny. Where the transaction was completed in some depositary receipt or clearance services, where the shares were transferred to a service operated by a third party (for example, a bank), the rate of SDRT originally charged was 1.5%. However, following the ECJ decision in HSBC and Vidacos Nominees v HMRC (Case C-569/07), HMRC no longer seeks to impose this 1.5% charge because it was found to be contrary to EU law.

Stamp duty land tax (SDLT)

Stamp duty land tax (SDLT) is payable when all or part of an interest in land or property is acquired in exchange for anything of monetary value. SDLT is payable on the purchase or transfer of real property (except in Scotland, where Land and Building Transaction Tax is payable (by the purchaser)). A land transaction involves the acquisition of a chargeable interest in UK land and includes the transfer of a freehold interest or the assignment or grant of a leasehold interest in land.

The triggering event is the effective date of the transaction on completion (or earlier when contracts are exchanged unconditionally), when the buyer has taken possession and/or has paid substantially all of the consideration for the transaction. A transaction return must be filed within 30 days of the effective date of any notifiable transaction.

SDLT is charged at 15% on residential properties costing more than GB£500,000 bought by certain corporate bodies, or non-natural persons (NNP). A NNP is defined as:

  • A company, a body corporate, other than a partnership, but not acting in its capacity as a trustee of settlement or as a bare trustee.

  • A partnership where one or more of its members is a body corporate or a collective investment scheme.

  • A collective investment scheme (where the property is acquired for the purposes of the collective investment scheme).

The standard SDLT progressive rates, which range from 2% to 12%, is charged on transactions valued above GB£125,000 if the property is used for any of the following:

  • A property rental business.

  • Property developers and traders.

  • Property made available to the public.

  • Financial institutions acquiring property in the course of lending.

  • Property occupied by employees.

  • Farmhouses.

From 4 December 2014 SDLT is charged at the following progressive rates on the acquisition of residential property (12% is the maximum rate):

  • Property valued at GB£0 to GB£125,000: 0%.

  • Property valued at GB£125,001 to GB£250,000: 2%.

  • Property valued at GB£250,001 to GB£925,000: 5%.

  • Property valued at GB£925,000 to GB£1.5 million: 10%.

  • Property valued at GB£1.5 million: 12%.

Rates applying on non-residential property or mixed property, without a rental consideration, are:

  • Property valued at not more than GB£150,000: 0%.

  • Property valued at more than GB£150,000 but not more than GB£250,000: 2%.

  • Property valued at more than GB£250,000 but not more than GB£500,000: 5%.

  • Property valued at more than GB£500,000: 5%.

SDLT is payable on the granting of a residential or commercial lease calculated at 1% of the net present value (NPV) of the rent over the term of the lease, applying a temporal discount rate of 3.5% of the rent payable in each year, to the extent the NPV exceeds:

  • GB£125,000 for residential property.

  • GB£150,000 for commercial or mixed use premises.


Corporate and capital gains taxes

5. What are the main corporate and/or capital gains taxes potentially payable on corporate transactions?

Corporation tax

Key characteristics. Corporation tax is payable by a company, a body corporate, or an unincorporated association resident in the UK on their worldwide income and gains, regardless of where they arise (section 5, Corporate Tax Act 2009 (CTA)). However, a UK resident company can elect to apply the exemption from UK corporation tax for the profits, including capital gains, attributed to its foreign branches, so that these are exempt from UK corporation tax.

A non-resident company carrying on a trade in the UK via a permanent establishment (PE) is subject to corporation tax on it profits wherever they arise (sections 5(3) and 19 CTA 2009). However, that company is only liable to UK corporation tax to the extent that the profits are attributable to that PE.

Although a non-resident company may not be carrying on a trade via a PE in the UK, a liability to UK income tax can arise, subject to the provisions of any relevant double tax treaty in force, on any UK source income (section 3 CTA 2009), subject to certain exemptions listed in sections 815 and 816 of the Income Tax Act 2007.

Triggering event. Corporation tax is charged for the financial year (1 April to 31 March), calculated by reference to profits declared for the accounting period. This begins when the company enters the charge to corporation tax, usually the date of incorporation, by beginning to carry out a business or becoming resident in the UK.

If an accounting period straddles two financial years, profits are apportioned between the financial years in which the accounting period falls.

Liable party/parties. Corporation tax is payable nine months and one day after the end of the accounting period. It is payable by the company: directors and shareholders are not, generally, liable to pay the company's corporation tax.

Applicable rate(s). From 1 April 2015 the main rate (the full rate) is 20%, which is to be reduced further to 19% from 1 April 2017 and reduced again to 17% from 1 April 2020.

Prior to 1 April 2015 the small profits rate for profits up to GB£300,000 was 20%. This rate was abolished, together with the marginal relief rate, from 1 April 2015.

Diverted profit tax

Key characteristics. Diverted profit tax, which applies from 1 April 2015, is designed to counter multinational enterprises entering into arrangements to divert profits from the UK, effectively reducing their UK corporation tax liability.

Triggering event. A charge can arise in any of the following circumstances:

  • A UK resident company or UK PE enters into arrangements with a related person where that person, or the transaction(s), lack economic substance resulting in a reduction of the UK company's or UK PE's taxable profits.

  • A person (whether or not UK resident) carries on an activity in the UK connected to the supply of goods, services, or other property made by a non-UK resident company in the course of its trade in a way that avoids creating a UK PE.

Liable party/parties. The UK resident company or UK PE pays the tax. If diverted profits tax is assessed against a non-UK resident company that remains unpaid, the following may be liable for the tax in the three years from its due date:

  • A company that was in the same group.

  • A company that, in the period 12 months before the relevant accounting period and ending when the tax became due, was a member of the same group.

  • A company that, in the period starting 12 months before the relevant accounting period and ending when the tax became due, was a member of the same group of a consortium that owned the non-UK company.

Applicable rate(s). The tax rate for diverted profits tax from 1 April 2015 is 25%.

Bank levy surcharge

Key characteristics. This is an annual balance sheet charge based upon the chargeable equities and liabilities of all UK banks and building society groups, foreign banks and banking groups operating in the UK, and UK banks in non-banking groups, from 1 January 2011. The levy is treated as corporation tax, and the relevant entities are required to submit returns on the bank levy and pay the bank levy.

Triggering event. The chargeable equities and liabilities shown in the annual balance sheet give rise to the levy.

Liable party/parties. UK banks and building society groups, foreign banks and banking groups operating in the UK, and UK banks in non-banking groups are liable to pay the bank levy surcharge.

Applicable rate(s). For accounting periods beginning on or after 1 January 2016 the rate is 8%, calculated on the same profits as corporation tax, before the offset of losses that arise before the commencement date or from non-banking companies, and before the surrender of group relief from non-banking companies. An annual surcharge allowance of GB£25 million will be available to reduce the profits liable to the surcharge.


Value added and sales taxes

6. What are the main value added and/or sales taxes potentially payable on corporate transactions?

Value Added Tax (VAT)

Key characteristics. Value Added Tax (VAT) is a tax on supplies of goods and services made by a taxable person in the course of a business. In Customs and Excise v Morrison's Academy Boarding House Association [1978] STC 1, it was held that for an activity to amount to a business for VAT purposes, that activity does not have to be carried out on a commercial basis with a view to making a profit.

VAT is charged on:

  • The supply of goods and services made in the UK.

  • The importation of goods to the UK from outside the EU.

  • The acquisition in the UK of goods from other EU member states.

Triggering event. For a charge to arise there must be a taxable event. The VAT legislation does not exhaustively define the term "supply" which is very broad in scope. The distinction as to whether a supply is one of goods or services is important, as different rules apply to the time and place of supply. Also, the treatment of the international supply of goods and services is governed by different rules.

A "service" for VAT purposes is not limited to the provision of advice or skills, but also the provision of any other thing that is not a supply of goods but is done for consideration. In Kretztechnik AG v Finanzamt Linz (Case C-465/03), the ECJ held that an issue of shares by a company was not a supply for the purposes of VAT. The sale of shares is an exempt supply and will not attract the same treatment as a transfer of a going concern.

However, VAT can only be charged on a supply of goods and services by a taxable person (a person or business registered for VAT). In the UK, it is not obligatory to register for VAT unless supplies made by a taxable person are in excess of GB£83,000 (from 1 April 2016). However, if there is reasonable belief that the value of taxable supplies of goods and services (including non-UK services received subject to the reverse charge) will exceed GB£83,000 in the next 30 days alone, the taxable person should register for VAT.

Voluntary registration is possible if either:

  • Taxable supplies are below the registration threshold for compulsory registration.

  • A trade is being carried on and it intends to make taxable supplies in the course of that business.

Liable party/parties. HMRC is responsible for the administration of VAT. Although consumers ultimately pay the tax, it is the responsibility of the supplier to account to HMRC for the VAT chargeable.

Taxable persons must file online returns at the end of each quarter, which are due 30 days after the quarter date. Failure to file the return on time will result in penalties.

Applicable rate(s). There are four rates currently applying for VAT purposes:

  • Exempt supply. Listed in Schedule 9 of the Value Added Tax Act 1994 (VATA 1994), include supplies relating to land and buildings, unless an election is made an option to tax under Schedule 10 of VATA 1994.

  • Standard rate: 20%. By default, all supplies are subject to VAT at the standard rate, unless they are exempt supplies or taxable at a lower rate. Professional fees are taxable at the standard rate.

  • Zero rate: 0%. Listed in Schedule 8 of VATA 1994, include such items as new houses, books and newspapers.

  • Reduced rate: 5% (for example, on fuel and power for domestic and certain other qualifying uses, or smoking cessation products).


Other taxes on corporate transactions

7. Are any other taxes potentially payable on corporate transactions?

Insurance premium tax (IPT)

Key characteristics. Insurance premium tax (IPT) is payable on the premium paid under taxable insurance contracts (under Article 401 of VAT Directive 2006/112/EC, enacted into UK legislation in sections 48 to 74, and Schedules 6A and 7A, of the Finance Act 1994). IPT is charged on the premiums received by an insurer or on fees for insurance-related services received by a taxable intermediary, under a "taxable insurance contract". A contract for reinsurance, and the provision of financial facilities, are exempt from the IPT charge.

Triggering event. IPT is payable on the issue of a taxable insurance contract (for example, a motor insurance contract).

Liable party/parties. IPT is charged to the policy holder as an addition to the premium, but it is payable by the insurer.

Applicable rate(s). There are currently two rates:

  • The standard rate of 9.5% (increasing to 10% from 1 February 2017).

  • The higher rate of 20%.

The higher rate applies to premiums charged on any of the matters that fall within Part II of Schedule 6A (section 51A) of the Finance Act 1994.

Climate change levy

The climate change levy was introduced in the Finance Act 2000 and came into force on 1 April 2001. This is a carbon tax that adds around 15% to the energy bills of business and public sector organisations.


Taxes applicable to foreign companies

8. In what circumstances will the taxes identified in Questions 4 to 7 be applicable to foreign companies (in other words, what "presence" is required to give rise to tax liability)?

Stamp duty, SDRT and SDLT

If a non-resident company acquires shares in a UK resident company which must be transferred by a stock transfer form, the instrument of transfer is subject to stamp duty. If there is no instrument of transfer, stamp duty is not payable. Stamp duty reserve tax (SDRT) is payable on an agreement to transfer shares (for example, a court order implementing a scheme or arrangement).

The following are subject to either stamp duty or SDRT:

  • Instruments relating to stock or marketable securities.

  • Conveyances of a transfer of land where the contract was entered into before 10 July 2013.

  • Transfers of certain interests in certain partnerships.

The acquisition of shares in a non-UK resident company can give rise to a charge to SDRT if that company maintains its share register in the UK. The stamp duty regulations do not expressly make any one party to the transaction liable to pay the duty. However, it is usually the buyer who pays the duty.

A non-UK company acquiring real property, including a leasehold interest, is subject to stamp duty land tax (SDLT) on the value of the chargeable consideration paid, which includes any consideration in money or money's worth given directly or indirectly by the purchaser, or by a person connected with the purchaser.

Annual tax on enveloped dwellings (ATED)

A non-resident UK company will be liable to ATED on any day within a chargeable period if it owns a UK dwelling that is worth more that GB£500,000. The company will be subject to ATED calculated as a percentage of the property's value.

Corporation tax

To the extent that a non-UK resident company is deemed resident or conducts a trade in the UK through a PE, it will be liable to UK corporation and capital gains tax on a worldwide basis, or on the profits arising from the UK PE (section 5(2), CTA 2009).

The statutory test of UK tax residence is the place of incorporation. If the company is incorporated in the UK, it is resident in the UK.

The common law test is where the company has its "central management and control". If a company is centrally managed and controlled in the UK, it is deemed UK resident, subject to dual residence and double tax treaties (De Beers Consolidated Mines v Howe [1906] AC 455 and Bullock v Unit Construction Company [1959] Ch 147). In broad terms, the test looks at where the highest level of control is exercised, (as appose to the day-to-day management). In Laerstate BV v HMRC [2009] UKFTT 209 (TC) it was stressed that it is necessary to consider the whole course of the company's business, rather than isolating and considering only specific instances of management.

A dual resident company may have a liability to UK corporation tax, and in this instance it will be necessary to review any relevant double tax treaty to see if UK corporation tax will be applied.

Diverted profits tax

Where a PE is not established, this is not a bar to being subject to UK corporation tax. A non-UK resident company may be subject to diverted profits tax if it structures its business in such a manner that deliberately avoids the establishment of a PE.


Under the UK and the EU VAT system, the application of VAT is determined by the place of supply rules. The general rule is that VAT is charged in the country where the customer belongs. However, there are a number of exemptions to this general rule.



9. Is there a requirement to withhold tax on dividends or other distributions?

Generally there is no withholding tax on payments of dividends by a UK company. However, the following distributions may be subject to UK withholding tax:

  • Property income and interest distributions, made by property authorised funds (PAIFs).

  • Interest distributions of bond funds.

  • Property income distributed by a real estate investment trust (REIT).

See table: Withholding tax requirements on dividends or other distributions, and exemptions/reliefs available on a share disposal.


Share acquisitions and disposals

Taxes potentially payable

10. What taxes are potentially payable on a share acquisition/share disposal?

Corporation tax

A company holding shares as an investment will be subject to corporation tax on any gain realised on the sale of those shares. However, if the company's trade is that of trading in shares, it will be subject to corporation tax on the profits arising on the disposal.

Stamp duty and SDRT

Stamp duty and SDRT may arise on the transaction (see Questions 4 and 8).


A sale of shares is an exempt supply for VAT purposes.


Exemptions and reliefs

11. Are any exemptions or reliefs available to the liable party?

Substantial shareholding exemption (SSE)

To improve the UK position as an international holding company jurisdiction, the Finance Act 2002 introduced the SSE relief, prior to which there were no exemptions available in respect of the corporation tax due on gains made on shareholdings. From 1 April 2002, gains made by companies are exempt, and losses are not allowable, where throughout a continuous 12-month period before and immediately after the sale, the following conditions are satisfied:

  • The seller must be a sole trading company or member of a trading group in the relevant 12-month period during which it held the relevant shareholding before and immediately after the sale:

    • a "trading company" is a company carrying on trading activities (paragraph 20-22, Schedule 7AC, Taxation of Chargeable Gains Act 1992 (TCGA));

    • a "Trading Group" is a group whose members' activities, taken together, do not include to a substantial extent activities other than "trading activities". For the purpose of SSE, a group is a company and its effective 51% subsidiaries, (section 1154, CTA 2010), including non-UK resident companies.

  • The target must also be either a trading company or a holding company of a trading group or subgroup in the relevant 12-month period before and immediately after the sale.

  • The seller must have held a substantial shareholding (more than 10% of the target ordinary share capital), and must be beneficially entitled to not less than 10% of the profits available on distribution and the assets available on a winding up, in the target for the relevant 12-month period beginning not more than two years before the sale.

As with all exemptions, the SSE legislation contains anti-avoidance rules aimed at tax driven arrangements (paragraph 5, Schedule 7AC, TCGA 1992). However, it is possible to seek HMRC guidance about SSE, under the non-statutory tax clearance procedure (see Question 2).

If SSE is not available, the gain will be subject to corporation tax and the loss will be allowable. The seller can offset current year losses (trading or capital) against the gain, and/or offset the gain against any carried forward capital losses.

Corporate venturing scheme relief (CVS)

Corporate shareholders who subscribed for shares between 1 April 2000 and 31 March 2010 and obtained CVS relief may qualify for an exemption from corporation tax on any gain, subject to all the relevant conditions remaining satisfied.

Venture capital trust

If the shareholder is a venture capital trust (VCT) it should qualify for an exemption from corporation tax, provided the VCT retains its qualifying status.

Roll-over relief

Where shares or securities are exchanged (sections 126-138A, TCGA 1992) and certain conditions are met, and the receiving company holds at least 25% of the target company, the exchange is not treated as a disposal. Instead, the new shares and securities are treated as having been obtained at the same time and at the same cost as the original shares and securities, therefore deferring any gain until the new shares are disposed of.


Tax advantages/disadvantages for the buyer

12. Please set out the tax advantages and disadvantages of a share acquisition for the buyer.


A share acquisition has the following advantages for a buyer:

  • The substantial shareholding exemption may be available (see Question 11).

  • Any trading losses in the target company may be available to be carried forward and set off against future profits, subject to the anti-avoidance rules.

  • A share sale of a property-rich company will give rise to a SDRT charge of 0.5% (compared to an individual asset sale, where SDLT will be charged at 4%, or more if residential property is involved).

  • A share purchase is exempt for VAT purposes (an asset sale may be subject to VAT if it is not transferred as a going concern).


A share acquisition has the following disadvantages for a buyer:

  • The buyer cannot claim capital allowances.

  • There will be a loss of roll-over relief on intangible assets.

  • The step-up of the asset base cost is not available to the buyer (except where section 179 of the TCGA 1992 applies).

  • If a de-grouping charge arises it will be treated as an increase in the seller's consideration and will be exempt if SSE applies.

  • The buyer will need to ensure that it has appropriate warranty/indemnity protection in the event of any unknown tax liabilities arising.


Tax advantages/disadvantages for the seller

13. Please set out the tax advantages and disadvantages of a share disposal for the seller.


A share disposal has the following advantages for a seller:

  • If the shares qualify for SSE the seller will obtain the significant advantage of a tax-free gain (see Question 11, Substantial shareholding exemption (SSE)).

  • Roll-over relief may apply (sections 126-138A, TCGA 1992), the effect of which is to defer any gain until the ultimate disposal of the new shares (see Question 11, Roll-over relief).

  • No capital allowance balancing charges will apply because the underlying assets are not individually sold.

  • There is no double tax charge. A share disposal gives rise to a single charge to corporation tax (if it is not exempt under the SSE), compared to an asset sale that gives rise to corporation tax on the gain and a further charge to income tax on the dividends received by the individual shareholders.


A share disposal has the following disadvantages for a seller:

  • If SSE is not available, the seller will lose what would have otherwise have been an allowable loss.

  • The seller may have to give extensive tax warranties/indemnities to the buyer in relation to any future tax liabilities.


Transaction structures to minimise the tax burden

14. What transaction structures (if any) are commonly used to minimise the tax burden?

Inter-company debts/pre-sale dividend

Whether these structures are appropriate will depend on the assets/liabilities making up the balance sheet of the target company:

  • Inter-company debts: these have the effect of reducing the share price, because the buyer will not want the outstanding debt. Therefore, any sale proceeds allocated to repaying the outstanding debt will be exempt from corporation tax. However, under no circumstances should this be described as part of the sale consideration in the target company (see Spectros International plc v Madden [1997] 70 TC 349).

  • Pre-sale dividend: where the target company has sufficient reserves, a pre-sale dividend can be paid to the other UK corporate shareholders who do not qualify for SSE in respect of any gain arising, therefore reducing the selling price of each share. UK corporate shareholders are generally exempt from corporation tax on UK dividends (Part 9A, CTA 2009). Should a pre-sale dividend be declared, reducing the value of the shares in the target company, the value shifting rules in sections 29 to 34 of the Taxation of Chargeable Gains Act 1992 must be considered.


Asset acquisitions and disposals

Taxes potentially payable

15. What taxes are potentially payable on an asset acquisition/asset disposal?


A company is subject to SDLT on the acquisition of commercial real or leasehold property at rates of up to 4% (or more, if the properties are residential). The acquisition of shares or marketable securities is subject to SDRT at 0.5% (see Question 4).


The acquisition of assets may be subject to VAT as a taxable supply of goods in the UK. However, if the assets are acquired as a going concern the transaction may qualify for an exemption (see Question 6), in which event the supply will be free from VAT.

Corporation tax

A company is subject to corporation tax on any chargeable gains it makes on the sale of any capital, or any intangible assets (for example, goodwill or intellectual property).

If the company has claimed a capital allowance on any capital asset acquired, a balancing charge may arise if it makes a gain on the disposal of that asset, limited to the cost price of the asset. The general rate of capital allowance on plant and machinery is 18%.

An annual investment allowance (AIA) on relevant capital expenditure incurred on an annual basis is available on expenditure of up to GB£500,000 until 1 January 2016, when the threshold is set to reduce to GB£200,000.


Exemptions and reliefs

16. Are any exemptions or reliefs available to the liable party?


No reliefs are available for SDLT and SDRT.


See Question 15, VAT.

Corporation tax

The current year's, or previous years', capital losses and current year's trading losses can be used to mitigate any corporation tax on chargeable gains arising from a sale.

Group members can elect to treat a sale as arising in another group company, where that company has losses that can be used to mitigate any corporation tax charge arising from the sale.

A claim for roll-over relief can be made by the seller if it reinvests the proceeds in qualifying assets (which includes plant and machinery, or land). The re-investment must be made 12 months before the disposal, or within three years after the disposal. Gains made on the disposal of intangibles assets can be reinvested on a broadly a similar basis (excluding the acquisition of goodwill).


Tax advantages/disadvantages for the buyer

17. Please set out the tax advantages and disadvantages of an asset acquisition for the buyer.


An asset acquisition has the following advantages for a buyer:

  • A buyer can claim a capital allowance or AIA on plant and machinery (see Question 15, Corporation tax). Therefore the buyer may wish to increase the consideration allocated to plant and machinery.

  • Consideration allocated to trading stock provides an immediate deduction when calculating taxable profits, if that stock is used in the buyer's trade.

  • A buyer does not inherit the historic tax liabilities of the seller.


An asset acquisition has the following disadvantages for a buyer:

  • A payment of SDLT of up to 4% will be due (or more, if the assets are residential properties).

  • The trading losses of the seller will be lost, as these cannot be transferred to a buyer where only the assets are acquired.


Tax advantages/disadvantages for the seller

18. Please set out the tax advantages and disadvantages of an asset disposal for the seller.


An asset disposal has the following advantages for the seller:

  • The availability of making a balancing adjustment for capital allowance, where assets are not fully written down (see Question 15, Corporation tax).

  • The possibility of utilising accumulated capital losses, or current year trading losses, to minimise any capital gains arising on the disposal of capital assets.


An asset disposal has the following disadvantages for the seller:

  • There will be a double tax charge, as an asset sale gives rise to corporation tax on the gain and a further charge to income tax on the dividends (see Question 13, Advantages).

  • There may be a capital allowance balancing adjustment (see Question 13, Advantages).

  • Any chargeable gain arising not covered by losses will be subject to corporation tax.


Transaction structures to minimise the tax burden

19. What transaction structures (if any) are commonly used to minimise the tax burden?

No commonly used structures are available to minimise taxation on the disposal of an asset sale.

As a rule, any losses arising on the sale will remain with the seller and will not be transferred to the buyer. If the seller continues in business, those losses can be offset against any future capital gains.

Where there are accumulated trading losses in the target company, it is common for the business to be hived down to a new company (Newco), subject to making provisions for any capital assets that may give rise to a de-grouping charge, which is then acquired by the buyer. Subject to the buyer carrying on the same trade as the Newco, and continuing to carry on that trade after the sale, the accumulated losses can be offset against the buyer's existing trade.


Legal mergers

Taxes potentially payable

20. What taxes are potentially payable on a legal merger?

Corporation tax

Corporation tax will apply on the disposal of assets that arises on the transfer of assets (see Question 15).


SDRT will arise on the transfer of chargeable securities for consideration in money or money's worth, and SDLT will arise on the transfer of real property involved in the transaction (see Question 4).


VAT will arise if the business is not transferred as a going concern (see Question 12).

Loan relationship charge

A loan relationship charge will arise where the fair value accounting applies to the loan relationship of the contract.


Exemptions and reliefs

21. Are any exemptions or reliefs available to the liable party?

A legal merger between companies of any size, where the shares are exchanged for shares in the merged company, must be sanctioned by the court under section 900 of the Companies Act 2006 (CA 2006). Section 900(2)(d) makes provision for the disused company to be dissolved, without being liquidated, and for its assets and liabilities to be transferred to another company. Subject to meeting the qualifying conditions, a legal merger sanctioned by the court should qualify for tax relief under sections 136-139 of the Taxation of Chargeable Gains Act 1992 (TCGA). Relief is also available to cover cross-border mergers under section 140 of the TCGA.

Transaction structures to minimise the tax burden

22. What transaction structures (if any) are commonly used to minimise the tax burden?

Because a legal merger is covered by sections 136-140 of the TCGA 1992 (see Question 21), provided the merger is not tax driven (which may fall foul of the anti-avoidance provisions), there are no commonly used structures to minimise the tax burden.


Joint ventures

Taxes potentially payable

23. What taxes are potentially payable on establishing a joint venture company (JVC)?

There are no taxes potentially payable on establishing a JVC. However, where assets are transferred to the JVC this can give rise to a charge to SDLT, SDRT, corporation tax and VAT.

Stamp duty or SDRT

Stamp duty or SDRT may arise if shares are transferred by the JVC partners to the new company (see Question 4).


SDLT will arise on the transfer of land and other real property to the JVC (see Question 4).

Corporation tax

Assets transferred inter-group, within six years, if transferred to the JVC can give rise to a de-grouping charge (section 179, TCGA 1992). The same charge can arise for intangible assets under section 780 of the Corporate Tax Act 2009.


Unless the transfer of assets to the JVC qualifies for relief as a transfer of a going concern (see Question 6) a charge to VAT will arise.


Exemptions and reliefs

24. Are any exemptions or reliefs available to the liable party?

Section 181 TCGA 1992

This section is specifically designed to facilitate the formation of a commercial JVC by lifting the de-grouping charge. The qualifying conditions are:

  • The JVC must be created for bona fide reasons and not for the avoidance of any tax.

  • The activities concerned must amount to a business. The relief will be denied if both parties are not transferring part of their business.

  • There can be no cash consideration payable to either party for transferring the assets or business.

If the JVC is a trading company, losses that arise may be surrendered between a JVC party and the JVC in proportion to the party's shareholding in the JVC.

Transaction structures to minimise the tax burden

25. What transaction structures (if any) are commonly used to minimise the tax burden?


Sometimes when forming a JVC to minimise the future tax burden, the company with the trade, including accumulated trading losses, will hive down the relevant trade to a new subsidiary, and the other members of the JVC will later acquire shares in the JVC.

This enables the JVC to continue to use the losses of the trade provided that, within three years, there are no major changes to the nature or conduct of the trade following the acquisition of an interest in the JVC by the other members.


Company reorganisations

Taxes potentially payable

26. What taxes are potentially payable on a company reorganisation?

Corporation tax

A charge to corporation tax will arise in the following circumstances, depending on the nature of the reorganisation:

  • On the disposal by a company of its business assets (asset sale).

  • On chargeable gains on amounts received by a shareholder on the disposal of its shareholding, or assets received. Relief may be available under the substantial shareholding exemption.


Transactions involving shares or securities are exempt for VAT purposes.

Stamp duty, SDRT and SDLT

The transfer of shares in a reorganisation can give rise to a stamp duty charge, SDRT or SDLT where property is involved.


Exemptions and reliefs

27. Are any exemptions or reliefs available to the liable party?

Share for share exchange

The reorganisation of a company's share capital is not a chargeable event for capital gains tax purposes. The new shares are substituted for the original shares with a base cost equivalent to the original shares. A tax charge will only arise on a disposal of the new shares (subject to the SSE exemption) (see Question 11, Substantial shareholding exemption (SSE)).

Inter-group transfer of shares or assets within the same chargeable gains group takes place on a no gain/no loss basis. On disposals, the disposing member adopts the transferring member's base cost. However, a de-grouping charge can arise if the seller leaves the group within six years. The same exemption applies also for SDLT, although the clawback period is three years.


Transaction structures to minimise the tax burden

28. What transaction structures (if any) are commonly used to minimise the tax burden?

Subject to the transaction being carried out for bona fide commercial reasons and the main, or one of the main, motives is not to obtain a tax advantage, the anti-avoidance provision to catch transactions in securities, which are broadly drafted, will not apply. Advance clearance can be obtained from HMRC.


Restructuring and insolvency

29. What are the key tax implications of the business insolvency and restructuring procedures in your jurisdiction?

Tax implications for the business

Many insolvency and corporate restructurings are carried out to place the group in a more secure financial position.

A company in liquidation continues to be taxed in the same way as a company that is not in liquidation, but it ceases to have beneficial ownership of its assets. This can affect a company's ability to claim group relief. A company in administration, receivership or subject to a voluntary arrangement maintains beneficial ownership of its assets.

Hiving down to preserve the tax losses, subject to meeting the qualifying conditions of Chapter 1 of Part 22 of the CTA 2010, is a normal procedure applied to preserve tax losses. The hive down must be affected before the liquidation to maintain the beneficial ownership rules. Furthermore, there must be no contract for sale before the hive down. To avoid a VAT charge, the business must be transferred as a going concern, if there is no VAT group. SDLT will be payable on any interest in land involved in the hive down.

Tax implications for the owners

When a company is placed in liquidation or administration, the shareholders cease to have control of the company and its assets. The exception to this is where a Law of Property Act (LPA) receiver is appointed or there is a voluntary arrangement, where the shareholders remain in control.

If the shares of the company become valueless, the shareholders may be able to claim a capital loss, but SSE relief is not available for corporate shareholders.

Tax implications for the creditors

Any tax liability on insolvency ranks as an unsecured creditor. HMRC is entitled to apply a set-off against any repayments of tax due, as at the date insolvency begins, even where a number of different taxes are involved. Any credits due to the company after the commencement of insolvency are repayable.


Share buybacks

Taxes potentially payable

30. What taxes are potentially payable on a share buyback? (List them and cross-refer to Questions 4to 7 as appropriate.)

There are no tax implications in the UK for a company re-purchasing its own shares, whether effected on-market (through an intermediary acting as principal) or off-market (directly by the company). The transaction is not subject to VAT. However, a charge to SDRT at 0.5% is payable by the company, calculated by reference to the price paid by the company. However, under a scheme of arrangement SDRT can be avoided by cancelling the shares.

The disposing party is subject to a charge to capital gains tax on the difference between their original base cost and the price paid by the company. Corporate shareholders may claim SSE relief to exempt the gain.

Higher rate individual shareholders will prefer to structure the transaction on-market to enable the gain to be taxed as a capital gain, rather than income in nature, as they will be subject to income tax at the higher rate.


Exemptions and reliefs

31. Are any exemptions or reliefs available to the liable party?

Substantial shareholding exemption (SSE)

Provided that the qualifying conditions are satisfied, SSE can be claimed, exempting the gain from corporation tax. One of the main conditions to qualify are that both companies are trading companies, or members of a trading group, both before and after the disposal (see Question 11).

Pension funds and charities are exempt from tax on the share price of a buyback.


Transaction structures to minimise the tax burden

32. What transaction structures (if any) are commonly used to minimise the tax burden?

Entrepreneurs' relief: individual shareholders

Individual shareholders holding at least 5% of the shares in a trading company, provided the transaction can be treated as a capital, can reduce the tax payable to 10% on the first GB£10 million of gains.

SSE Relief (see Question 11) available to corporate shareholders.


Private equity financed transactions: MBOs

Taxes potentially payable

33. What taxes are potentially payable on a management buyout (MBO)?

An MBO is the acquisition of the business as a going concern by its management team. This is usually effected by the management team forming a new company, funded by a combination of debt and equity.

MBOs are treated as a straightforward asset acquisition and therefore the same taxes apply (see Questions 15, 16, 17 and 18).

Where the full unrestricted market value of the shares [is] not paid by the managers acquiring the business, this can give rise to a charge to income tax, as the discount is deemed to have been received by reason of employment.


Exemptions and reliefs

34. Are any exemptions or reliefs available to the liable party?

The "safe harbour" arrangements for managers of equity and ratchet arrangements introduced by HMRC in association with the British Venture Capital Association (safe harbour memorandum) provide a guarantee to managers that no income tax liability will arise on the shares they acquire, subject to satisfying the qualifying conditions.

However, the safe harbour memorandum cannot be relied upon for arrangements where the main, or a significant, purpose of which is the avoidance of tax or National Insurance Contributions.


Transaction structures to minimise the tax burden

35. What transaction structures (if any) are commonly used to minimise the tax burden?

Preserving tax losses

Except for the payment of SDLT on any property involved in the MBO, and the requirement that the management team satisfy the "safe harbour" memorandum, there are no other taxes payable on an MBO. However, to preserve tax losses for Newco that may be hived down to the target, the target's business can be hived up on a tax-neutral basis.



36. Please summarise any proposals for reform that will impact on the taxation of corporate transactions.


There has been a removal of the duty of confidentiality that was owed by persons who voluntarily disclose information to HMRC to assist HMRC in determining whether there has been a breach of the Disclosure of Tax Avoidance Schemes (DOTAS) rules. In short, employees will no longer owe a duty of care to their employers should they choose to whistleblow on their employer.

Deterring serial tax avoiders

The government is consulting on the technical detail of introducing tougher measures to punish (and therefore deter) taxpayers who persistently enter into tax avoidance schemes that fail. The tougher measures include increased financial penalties, increased reporting obligations, "naming and shaming" and restricting access to tax reliefs. Legislation to implement these measures will be introduced in the Finance Bill 2016.

Peer-to-peer lending: bad debt relief

As announced as part of the 2014 Autumn Statement, legislation is to be introduced to provide a new relief allowing individuals lending through peer-to-peer (P2P) platforms to offset any losses from loans that go bad against other P2P interest received. This measure is to be effective from April 2016 and, through self-assessment, will allow individuals to claim relief for losses incurred from April 2015 (enacted).

Investment managers' disguised fee income to be subject to income tax

The government confirmed that legislation will be introduced providing that the guaranteed fee income of investment managers arising on or after 6 April 2015 will be subject to income tax.

R&D: increased rates and restriction on qualifying expenditure

The research and development (R&D) rules are to be amended so that the costs of materials incorporated in products that are sold will be excluded from qualifying expenditure attracting R&D credits from 1 April 2015.

Intangibles regime: no corporation tax relief for purchased goodwill

Draft legislation, which will be included in the Finance (No 2) Bill 2015, proposes the removal of corporation tax relief for the costs incurred by a company in purchasing goodwill (enacted).

Annual investment allowance permanently set at GB£200,000 from 1 January 2016

The Finance (No 2) Bill 2015 will set the annual investment allowance (AIA) cap at GB£200,000 with effect from 1 January 2016 (enacted).

Direct recovery of debts

The government has announced that legislation to allow HMRC to directly recover tax debts from the bank and building society accounts of tax debtors (direct recovery of debts) will be included in the Finance Bill (No 2) 2015. The legislation will take effect from Royal Assent (enacted).

Private equity and venture capital: limited partnerships

The government has announced that it will consult on "technical changes" to limited partnership legislation to enable private equity and venture capital investment funds to use a limited partnership structure more effectively.

Capital gains tax: disposals of UK residential property by non-residents

The government has confirmed that, from 6 April 2015, non-UK resident persons (including individuals, trustees, personal representatives and certain closely-held companies) will be subject to capital gains tax on disposals of UK residential property. Non-resident individuals will be subject to tax at the same rates as UK resident individuals (28% or 18% on gains above the annual exempt amount). Non-resident companies will be subject to tax at the same rates as UK companies (20%) and will have access to an indexation allowance (enacted).

SDLT seeding relief for PAIFs and co-ownership ACSs

The government will introduce legislation in the Finance Bill 2016 to:

  • Introduce an SDLT seeding relief for the transfer of existing property portfolios into a property authorised investment fund (PAIF) or a co-ownership.

  • Amend the SDLT treatment of co-ownership Authorised Contractual Schemes (ACSs) so that SDLT is not payable on transactions in units (subject to resolving potential avoidance issues).


Online resources

HM Revenue and Customs


Description. The website of the UK tax and customs authority.

Contributor profile

Dr Clifford J Frank, Partner


T +44 (0)20 7887 1948
F + 44(0)20 7887 6001

Professional qualifications. LLM (tax), 2005; HDipICA 2008, London University; PhD, 2015, Cavalla University; Certified Mediator, Regent University, London.

Areas of practice. International and domestic taxation; trust; corporate law; arbitration and mediation.

Recent transactions.

  • Acting for seller in share sale, involved de-grouping issues and properties held outside the UK transferred to the UK: GB£6.1 million.
  • Dialogue Group reorganisation of international group for royalty planning: GB£26 million.
  • National Crime Agency investigation: GB£1.3 million.
  • Acting for creditors group in GLA, action against an insolvent group: GB£6.4 million.
  • Structuring an American group in Bio-fuel start up project in South Africa: US$600 million.
  • Prime Property Collection inheritance tax planning/cross-border Cyprus, Jersey and UK.
  • Restructuring an individual's estate CMV GB£35 million, resulting in income tax savings of GB£1.6 million and inheritance tax (IHT) of GB£12 million.
  • Representing clients in HMRC fraud investigation, involving non-resident companies.
  • Restructuring family property company and trust to enable the trade to qualify for Business Property Relief.
  • Incorporating property investment partnership resulting in SDLT savings of GB£560,000.
  • EIS application for business operating in central Africa, in bio-fuel (renewable energy) to raise capital of GB£4 million.
  • Consulting major Italian Merchant bank on establishing UK interim holding company.
  • School fee planning.
  • Restructuring GB£1 million of foreign loans bringing the same onshore, with a 10% tax charge.

Languages. English, Italian (elementary).


  • 3 Ways to Settle Your Tax: Staying in Switzerland and Preserving Your Anonymity.
  • REIT's creating value & liquidity from a property portfolio tax efficiently.
  • Why me? A tax investigation, June 2016.
  • Up Close and Personal, LEXeFISCAL, October 2015.

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