Can You Swap Shares Without Any Tax Charges?

Share for share exchanges are very common and are used for various commercial reorganisations. These exchanges often occur when forming new holding companies in order to transfer assets out of the original company.

In order to ensure the transaction is tax neutral and does not succumb to any capital gains tax, stamp duty or income tax, these exchanges need serious consideration and thought, you will often need experienced professionals like Samera to help you through the process. 

Share For Share Exchange 

A share for share exchange is when a company transfers shares to someone in exchange for shares in another company. These exchanges often occur when forming new holding companies in order to transfer assets out of the original company. New shareholders can be introduced or the shareholders can be the same in the new and old companies.

How Our Qualified Experts Can Help You

  • We specialise in helping private companies, private practices, directors and shareholders. 
  • Not only can we advise you what to do but we have also seen many before you make countless mistakes that you can avoid.
  • We handle new company holdings and de-merges.
  • We also deal with shareholder resolutions and we can draft the agreements necessary to obtain the HMRC tax clearances, working alongside specialist solicitors

What You Need for a Share for Share Exchange 

There are a few things that are mandatory for a successful exchange, including an exact time frame, a qualified tax advisor as well as the following:

Shareholder Approval 

It is mandatory for you to get the approval for the transaction from your shareholder for this exchange to proceed. This does not have to be done by you completely, the team here at Samera will be able manage any compliance issues including board approval and shareholder resolutions. 

Shareholder Considerations

Although the shareholders do not receive any cash, HMRC will look to subject the share transfer to tax. Regardless of this, there are a number of legitimate tax legislation reliefs which legally enable shareholders to minimise any liability to tax or defer any tax until a physical sale of the shares occurs. 

Documentation

There is a lot of documentation that is accompanied with these types of exchanges that can put people off but thankfully we can sort a lot of that out for you, leaving you to focus on the things that really matter.

We handle a variety of aspects of the exchange including:

  • The revised articles or shareholders’ agreement.
  • The clearance application required from HMRC.
  • Shareholder resolutions.
  • Stamping documentation.
  • Dealing with HMRC, including reporting and payment of any taxes 
  • The consultation with any employees affected as a result of the reorganisation. 

Execution of Share for Share Exchanges 

The uses of share for share exchanges are extensive enough to cover various situations. If this is the path you decided is best for you and your business, we have compiled a set of necessary background considerations. 

Share for Share Commercial Exchanges 

In our extensive experience here are the most common scenarios of share for share exchanges we have come across:

  • Creating distributable reserves.
  • Restructuring and streamlining ownerships.
  • Managing the planning of succession.
  • Mediating and settling shareholder disputes.
  • Ring fencing liabilities.
    (This scenario is particularly popular within the tech industry)

Approaching Share for Share Exchanges 

If this service looks like something that would interest you, your shareholders or will benefit your business, get in touch with our in house experts here at Samera. The team will happily guide you and offer you expert advice and tips that aid this process. This does not have to be stressful and expensive, the structure of share for share exchanges can be very flexible. The approach and structure for your exchange will be heavily dependent on the circumstances. 

Scheme of Arrangement

A scheme of arrangement involves the process of a court cancelling an existing company’s entire issued ordinary share capital. Due to the court process, schemes of arrangement are not very common. 

Share for Share Exchange FAQ’s

These questions are very common and need answering before implementing the share for share exchange. 

Is Business Assets Disposal Relief Preserved?

During a share for share exchange, you may lose Business Assets Disposal Relief / entrepreneurs’ relief if there is a future disposal of the holding company’s shares. However, we have compiled a few ways that you can preserve your entrepreneurs’ relief.

Your can preserve your Business Assets Disposal Relief if:

– The company is a holding company of a trading company.

– The shares before the exchange have been held for at least 12 months and represent 5% of the new holding company’s issued share capital.

What is the Position for Option Holders?

Share plan documentation and plan rules are absolutely vital when addressing what happens to share rights of option holders. Without this being concrete before the exchange, the scheme of arrangement or share for share exchange may unintentionally trigger the early vesting or exercise of rights.

You need to review employee share option plans before beginning to implement the share for share exchange to eradicate any implications that may arise.

Is Stamp Duty Payable?

Stamp duty exemption on a qualifying share for share exchange only applies in certain cases, otherwise stamp duty is payable by the new holding company at a 0.5% rate. 

Usually HMRC offer a stamp duty relief for the new holding company when: 

  • The new holding company acquired all, not just some, of the existing company’s issued share capital.
  • The consideration to the existing shareholders is the granting of shares in the new holding company.
  • The shareholders of the existing company acquire the same percentage and class of shares in the new holding company following completion of the exchange.
  • The share for share exchange is for commercial reasons and not for tax avoidance.

Should the shareholders complete a hold over elections?

Depending on your personal circumstance, we may recommend the use of hold over elections.

A hold over election defers a charge to capital gains tax which may arise as part of the share for share exchange until the shares are completely disposed of and proceeds are received. 

Hold over elections also need to be reported to HMRC in order to be as effective and binding as possible.

Impact for SEIS and EIS investors under the share for share exchange

In most share for share exchanges, EIS shareholders lose their tax reliefs on disposal within three years of their acquisition. When shareholders swap shares, the shares end up holding in a completely different company, which is why share for share is considered as a disposal. However, HMRC will not consider the shares ‘disposed’ after they are transferred, which may preserve income tax reliefs in certain situations.

These situations include:

You obtain HMRC clearance in advance.

The new holding company acquires all, not just some, of the existing company’s issued share capital under the scheme of arrangement or on a share for share exchange.
The only issued shares in the new holding company are owned by the subscribers.

Can a clearance as to tax neutrality be obtained from HMRC?

You can apply to HMRC for a tax clearance as there are no capital gains tax arising when shareholders swap shares in one company to another company. The clearance will also be able to confirm that there is no income tax liability that your company will have to pay. 

Contact us for more information 

If you are looking for someone to help your share for share exchange proceed as smoothly as possible, then please get in touch with our experts here at Samera Business advisors. Our team will happily guide you through the process, take care of the due diligence and HMRC communication and can make the process of your share exchange as seamless as possible. 

About Chris O'Shea

Chris is the Digital Marketing Manager at Samera, in charge of content, social media and marketing. Outside of Samera he is usually reading, playing the guitar or playing with his cat Zelda.

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