UK bearer shares to be abolished

Why the abolition of UK bearer shares could have important tax consequences:

Background Facts

  1. Since 26 May 2015 UK companies have not been permitted to issue bearer shares.
  2. But there is also a strict timetable relating to existing bearer shares and unless the right steps are taken now the holders of bearer shares may lose their capital in the relevant companies.
  3. Current holders of bearer shares can apply to the company for the conversion of their bearer shares into ordinary shares and this needs to be done before 26 December 2015.
  4. If not, all rights attaching to any remaining bearer shares will be suspended, including the right to vote or to receive dividends.
  5. After 26 February 2016 steps will be taken to cancel all remaining bearer shares without exchanging them for other capital in the company. The company will be required to pay into court a sum equal to the nominal value of the bearer shares and any premium and accrued dividends relating to them. The bearer shareholder will then have a limited period to claim back the sum paid into court, but will only be permitted to recover the money in exceptional circumstances. The bearer shareholder will not be given an alternative interest in the company and if the bearer shareholder is unsuccessful in his claim he will forfeit the money relating to his bearer shares.

Why does this have a tax angle?

The advantage of bearer shares for tax purposes is that their situs is where the share documentation is physically held, therefore they offer a means of holding shares in a UK company which are not a UK situs asset. These have therefore historically been used for planning:

  1. No UK inheritance tax on bearer shares held offshore for non UK deemed domiciled individuals.
  2. The scope to elect for the remittance basis of taxation in respect of gains on bearer shares held offshore for non UK domiciled individuals.

Implications of the abolition

Individuals who have undertaken tax planning using bearer shares will need to rethink their strategies as the assets will shortly become UK situs (or disappear!). In some cases it may be appropriate for the company to purchase the shares before the new rules kick in, thus allowing the proceeds to be reinvested in other non UK situs assets.




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