Stamp duty fun!

Avid readers of TaxBites will recall that last July we warned of stamp duty changes that were afoot in relation to ‘swamping’.  So where are we now?   Our simple example puts recent developments into context:

Partition demerger example

Equal shareholders in Tradeco Ltd, Janet and John fall out and decide to partition the business (worth £10m) into separate companies of equal value.  Janet takes over the property investments and John the trade, via a capital reduction demerger.  The steps are broadly:

  1. New holding company, Propertyco, is inserted above Tradeco, via a share for share exchange.

  2. Tradeco distributes the investment properties up to Propertyco, leaving the trade behind.

  3. 3. A capital reduction demerger takes place with the end position that:

    • John owns 100% of Tradeco (via his new holding company).
    • Janet owns 100% of Propertyco.

Looking at the potential stamp duty charge of £50,000 (0.5% x £10m) at the first step:

Stamp Duty position

Janet and John’s shares in Propertyco will be a mirror image of their original shareholdings in Tradeco, however, stamp duty relief is denied here because a subsequent change of control of Propertyco is envisaged at the time of the share exchange – Janet will own 100% of the shares after the partition. 

Our July TaxBite ( illustrated how simple planning known as ‘swamping’ can be used here to effectively eliminate the stamp duty in such circumstances.

Finance Bill 2019-20 will put a stop to ‘swamping’ once Royal Assent is received. Stamp duty will be calculated according to market value (i.e. £10m here), where shares are transferred to connected companies.

However, the Bill also introduces a welcome amendment to stamp duty relief provisions, which prevents us from reverting back to the £50,000 stamp duty charge.  This is because Janet had held at least 25% of the share capital of target company, Tradeco, for at least three years prior to the share exchange.  As such, no stamp duty will fall due! 

When will Finance Bill 2019-20 receive Royal Assent?

Royal Assent is envisaged in Spring – until then swamping remains an option.




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