13 Stamp Duty: Section 113, and Schedule 35, Finance Act 2002 - Withdrawal of Relief for Company Acquisitions
13.1 Section 76, Finance Act 1986 offers relief if a company acquires the whole or part of an undertaking of another company (“the acquiring company”) in exchange for shares. A classic situation in which this relief may be appropriate is a demerger using the provisions of Section 213(3)(b)(i), ICTA 1988. 13.2 If the conditions of Section 76 are met, then the rate of stamp duty is limited to 0.5%. If the assets transferred include land, this is likely to be a lower rate than the ad valorem stamp duty rate that would apply. 13.3 Under the provisions of Section 113, Finance Act 2002, if control of the acquiring company changes in the three years after the transfer, and the land is still held within the acquiring company or a subsidiary, then ad valorem stamp duty is payable (Section 113(1), Finance Act 2002.). There are certain exceptions to this, as set out in Paragraph 2 and 3 of Schedule 35, Finance Act 2002.
13.4 Under Paragraph 9(2) of Schedule 35, Finance Act 2002, the following persons may be required to pay the Section 113 tax if it is not paid by the acquiring company:
13.4.1 any company that at any relevant time was a member of the same group as the acquiring company and was above it in the group structure;
13.4.2 any person who at any relevant time was a controlling director of the acquiring company or of a company having control of the acquiring company.
13.5 The same definitions apply as in section 12 above with regard to the “relevant time” and “above”.
13.6 There is therefore the same risk to the Sellers if the Buyer’s group has had the benefit of relief under Section 76, Finance Act 1986 in the three years up to Completion. If the Company is inserted into the Buyer’s group above the acquiring company, there is a secondary exposure arising from Paragraph 9 (2), Finance Act 2002.
14 Inclusion of Other Seller Protections
10.2 The provisions of clause 4 (due date for payment), clause 5 (deduction from payments) and clause 6 (claims) shall apply to this clause as if the same were set out herein but substituting references to the Covenantors with the Buyer (and vice versa) and making any other necessary modifications.
14.1 As this is an undertaking to pay, but given by the Buyer to the Seller, there are various matters that need to be covered in order to give some certainty. It makes sense to use the existing clauses, designed to deal with the main covenant, for this purpose.
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