Clause 77 prevents a double stamp duty charge from arising on some company reorganisations, and follows on from clauses 75 and 76. During the consultation on extending the market value rule to unlisted securities, it was put to the Government that a double charge could arise on a type of company reorganisation known as a capital reduction partition demerger. We are very heavily in the long grass of tax intricacy. Such a demerger is where shares in a company are cancelled and shareholders are compensated with shares in a new company, rather than with cash. A corporate group may pursue this strategy where, for commercial reasons, it wants to split a group and ensure that the companies in that group are held separately by the original shareholders.
Currently, taxpayers who follow the rules can incur two stamp duty charges on such demergers, while other taxpayers use contrived arrangements to avoid paying any stamp duty on the same reorganisation. This clause, together with clause 75, ensures that one charge arises on most capital reduction partition demergers by more tightly targeting existing anti-avoidance provisions related to company reorganisations.
Stamp duty is a transaction tax. When a company is split using a demerger arrangement, there are a number of steps, two of which are potentially subject to stamp duty unless a relief applies. Usually relief applies on one step only, so that there is just one charge on the overall transaction. In some demergers, known as capital reduction partition demergers, relief is unavailable on both steps due to anti-avoidance provisions. Clause 77 will prevent a stamp duty double charge from arising, so that only one charge will arise on most capital reduction partition demergers. It does this by better targeting the existing anti-avoidance provisions. The measure applies to stamp duty instruments that are executed on or after Royal Assent.
Clause 77 works together with clause 75 to ensure that one charge will apply on most capital reduction partition demergers. This increases fairness and consistency. I therefore commend the clause to the Committee.
I raised these points in an earlier debate, but I will do so again so that the Minister can respond.
On clause 77, the Chartered Institute of Taxation points out that there are a number of circumstances in which a shareholding of 25%, which is required for the exception to section 77A of the Financial Act 1986 to apply, will be an excessive hurdle. Its reasoning is that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding be at least 10% would be more appropriate to cover a wide range of commercial scenarios. I would be grateful to hear the Minister’s response on that issue.
The hon. Lady raises a very specific circumstance. It would be appropriate for me to write to her about the specifics of the decision about percentages, rather than try to go through the argument here.
The discussion has already been had between HMRC and stakeholders, and therefore it has to some extent already been addressed through the consultation process, but I am happy to revisit the issue.