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ACCA Strategic Professional · Advanced Taxation (UK) · Stamp taxes (stamp duty, stamp duty reserve tax and stamp duty land tax)

Dunmore Ltd, a UK company, sells to Orla Ltd the entire share capital of its UK subsidiary Tarn Ltd for £2,000,000 payable in cash, plus £500,000 deferred consideration that is contingent on profits and is certain to be paid. Orla Ltd has no group relationship with Dunmore Ltd. Which statement correctly states the stamp tax cost to Orla Ltd, assuming an unconditional agreement and the contingent amount will be paid?

The cost is £12,500, being 0.5% of total consideration of £2,500,000. The contingent amount that will be paid forms part of the consideration for the shares. Orla Ltd and Dunmore Ltd are not group companies, so no group relief reduces the charge.

  1. A£10,000, because 0.5% applies to the £2,000,000 cash consideration only
  2. B£12,500, because 0.5% applies to the total £2,500,000 consideration, with the contingent amount accounted for when it is paidCorrect
  3. C£5,000, because the rate is 0.25% for a controlling holding
  4. D£0, because transfers of whole companies are relieved

Explanation

Stamp duty and SDRT at 0.5% are charged on the consideration, which here includes the contingent payment that is certain to be paid. Total consideration is £2,500,000, and 0.5% gives £12,500. The £10,000 figure leaves out the contingent amount. No relief is available as the companies are not in a 75% group.

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