STSM042475 | Exemptions and reliefs: reliefs: Section 77A – Example Transaction A (“Particular Person”)

Example – A “Particular Person” obtains control

Four shareholders own 25% each of three trading companies. An agreement is reached with a third-party buyer, who wants to acquire 80% of the value of the three companies.

For commercial reasons the third-party buyer insists on purchasing 80% of a group structure rather than 80% of the individual companies.

To enable this, the existing shareholders of the three target companies insert a new holding company (the acquiring company). Following a share for share exchange between the acquiring company and the shareholders of the target companies, the third-party buyer purchases 80% of the issued share capital in the acquiring company.

Assuming all the other conditions for s.77 FA1986 relief are met the “disqualifying arrangements” are not the share exchange itself. The “disqualifying arrangements” (see STSM042460) are the agreement (in existence at the time of the share exchange) for the third-party buyer to purchase 80% of the acquiring company.

In this example there is a “particular person” identified (the third-party buyer) who will, under the arrangements, take control of the acquiring company. Therefore, relief under s.77 FA1986 is not available.