Business – Tax doubt hits Punch pub bid

The threat of a £200m capital gains tax bill was stalling Punch Taverns’ £2.7bn bid for the pub and off-licence interests of Allied Domecq as Accountancy Age went to press.

Punch Taverns, the tenanted pub group, launched a cash bid for Allied Domecq in an attempt to trump the £2.4bn share-deal offer from Whitbread, the hotels and leisure group. But Punch, which is being advised by Arthur Andersen, was left waiting for tax clearance over whether Allied shareholders would have to pay capital gains tax on gains made through acquiring Punch Taverns shares.

A spokesman for Punch said the company was confident it would receive tax clearance by the end of the week, as it was mirroring the tax structure of the Whitbread deal.

Its hand was strengthened after Whitbread called for the London Stock Exchange to probe its share dealings after its price fell by 4.7% last Friday.

Capital gains tax is a sensitive issue for the government. Last week, the Revenue announced a clampdown on capital gains tax loopholes involving UK-based trusts. It moved to increase the tax burden on share buy-back schemes such as venture capital fund Electra Investment Trust in April.

The Inland Revenue refused to comment on the Allied deal, but said shares would not be treated as income if they were a straight exchange of old for new company shares.

John Whiting, tax partner at PricewaterhouseCoopers, said: ‘It’s a complex bid and looks like sensible capital gains tax mitigation to me.’

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