The Chancellor's Autumn Statement included a number of measures intended to stem the loss of tax revenue from various corporate and deal structures. Of particular note for corporate lawyers, are those relating to stamp duty payable on takeovers implemented by way of a scheme of arrangement, and the ability of shareholders to elect for certain distributions to be made so as to qualify for capital treatment. We outline below the key points to note. Additional detail on the changes is expected when the draft Finance Bill is published later this month.
Stamp duty saving for takeovers effected by way of a scheme to be abolished
It has been announced that the Government will, by early 2015, bring forward amendments to the Companies Act, the effect of which will mean that takeovers conducted by way of a scheme of arrangement will no longer be able to enjoy the stamp duty savings that they currently do. Based on the information available at the moment we understand this to mean that, whilst schemes will still be able to be used to effect a takeover, they will have to be share transfer schemes rather than a cancellation scheme. We expect to know more when the draft Finance Bill is published later this month.
Schemes of arrangement are a popular way to structure takeovers, partly because the required level of target shareholder support can be easier to achieve than with a contractual offer. In addition, cancellation schemes, where shares in the target are cancelled and new target shares are then issued to the bidder, can provide the bidder with significant savings because no stamp duty is payable on an issue of shares.
It will be interesting to see if we see a resurgence of contractual offers as a result of the change, or whether the advantages of schemes as regards the level of support from target shareholders mean that they will remain popular.
Returning value to shareholders
Companies use special purpose share schemes, such as B share schemes, to offer shareholders the choice of receiving cash either as income as a dividend or capital through an issue of new shares that are subsequently purchased by the company or sold to a pre-arranged third party. It is generally of benefit to additional and higher rate tax payers to receive capital. The Government intends to remove this tax advantage by taxing the amount received by an individual under such a scheme in the same way as dividend income. This measure will be effective from 6 April 2015. We expect to know more detail when the draft Finance Bill is published later this month.