Mixing apples and oranges – acquisition of shares v assets
Buying the shares in a company is cost effective from a Stamp Duty perspective. Broadly the acquisition cost of a company’s shares for £1m attracts Stamp Duty at 0.5% (£5,000) compared with Stamp Duty Land Tax (SDLT) on the same value of a residential site (£39,500).
As the value of a site increases the absolute benefit becomes significant.
We are regularly contacted by clients and contacts who have shaken hands on a deal to buy the shares of a company that holds a site. This is usually with the above saving in mind. The position is unfortunately much more complicated than this with a number of matters to be considered:
- The purchase price for the shares is usually different to the value of land being acquired – for various reasons.
- By buying shares the acquirer, by default, picks up any historic problems that the company may have.
- Tax relief on the purchase price can be lost if, once developed, the shares you have acquired aren’t resold for example where the completed units are just sold directly from the company.
- The costs of accountancy and legal costs for tax, financial and legal due diligence can become prohibitive for smaller acquisitions, eating up any SDLT savings.
We always encourage our clients to speak with us at the early stages of any acquisition so we can help assess whether it is viable or advisable to acquire shares rather than assets. Buying the shares can be very effective from an SDLT perspective for larger acquisitions/simple corporate entities with little history, but it is important that early advice is sought to weigh up the pros and cons.
Cowgills is a leading independent firm of Chartered Accountants and Business Advisors based in the North West of England – from Greater Manchester to Liverpool. We use our sector experience to deliver tailored financial solutions and support for businesses.
Get in touch with our Head Office in Bolton, Greater Manchester, for any financial advice on 01204 414 243.
The information was correct at time of publishing but may now be out of date.