As part of the "Tax Administration and Maintenance Day" on 27 April, the Government has published a consultation setting out proposals for the reform of stamp duty/SDRT for shares and marketable securities.
The consultation follows a "call for evidence" on stamp taxes modernisation in 2020, and extensive discussions with a stamp taxes working group. The consultation now sets out the Government's detailed proposals for reform, which are likely to be welcomed by both taxpayers and tax law practitioners, with plenty of modernisation and simplification aspects.
The new tax
- The overlapping, and at times anachronistic, stamp duty and SDRT would be replaced with a single tax on securities. Much of the features of this tax would copy the SDRT approach for electronic transfers.
- As has been the case since the introduction of COVID stamp duty measures, no documents would be physically stamped.
Scope
- The new tax would apply to shares of UK incorporated companies, wherever the agreement to transfer or instrument of transfer is executed. The (in practice, theoretical) charge to stamp duty on securities of non-UK companies for transfers executed in the UK would go, as would the extension to non-UK companies with UK registers.
- As well as shares, it would apply to securities (such as stock and bonds) with "equity-like features". The precise scope is still to be defined but would likely follow the usual approach (for example, as seen in the loan capital exemption) of regarding convertibles, exchangeables, profit participating debt, etc. as being "equity-like features".
- Share buybacks by UK companies would still attract a stamp tax charge.
- Transfers of call options and warrants over UK company shares would be within the scope of the tax, but the grant of options and warrants would not.
- The granting of security would be expressly excluded from the tax.
- There would be no stamp tax on the transfers of partnership interests – although there would be (as yet unspecified/undetermined) anti-avoidance legislation to prevent partnership interests being used as a method of transferring share ownership to avoid the new tax.
Payment and administration
- The new tax would be mandatory and self-assessed, a bit like stamp duty land tax on UK land transfers. This would be a big change from stamp duty, which is a voluntary tax but with company secretaries unable to write up books without stamping; and on the other hand would remove the need for manual processing by HMRC, which can cause transaction delays.
- There would be an online portal for filing and payment (other than where CREST currently collects SDRT, where that system would continue to apply for the new tax). There would no longer be a £1,000 de minimis.
- The online portal would give a reference number immediately. Company secretaries/registrars would be entitled to write up the register based on the reference number, ending delays in writing up the register.
- The purchaser would generally be legally liable for the tax (other than on CREST, where the existing system for accounting for tax would be retained).
- The tax may be due earlier than for stamp duty in some cases, largely following (but slightly accelerating) the SDRT approach. So, tax would have to be accounted for within 14 days of the agreement to transfer (unless the agreement is conditional, in which case 14 days after the agreement goes unconditional), rather than 30 days after actual transfer. Penalties would start at 31 days and tax-geared penalties would kick in earlier than now, after 7 months.
- Consideration would be defined as "money or money's worth", as is currently the case for SDRT. There is an acknowledgement in the proposals that this change would need to be implemented without causing disruption by bringing into charge certain commercial transactions which would not be expected to give rise to stamp taxes – the proposal suggests a relief or exemption for certain pension and life insurance arrangements, for example, which would exclude certain obligations to pay pension benefits and issuances of life insurance policies from the new tax charge. It asks for any other instances where the change would result in unwarranted disruptions to commercial transactions, as compared to the current system.
- The rules for contingent consideration would be simplified. In the case of fixed but contingent consideration, the new tax would be due upfront in full. For uncertain/variable consideration, the new tax would be due upfront but based on a reasonable estimate. In either case, there would be an adjustment (and further payment or repayment) when the contingency is known/finalised. It would be possible to apply for a deferral of payment in some circumstances (but not for more than 2 years – at which point the tax would be due on the full uncertain consideration) for the contingency to become determined.
- There would be a non-statutory pre-clearance system to enable taxpayers to obtain an informal opinion on the tax treatment of transactions where there is genuine uncertainty.
- The current SDRT compliance regime would be replicated, meaning that HMRC would have information and inspection powers and be able to raise discovery assessments if it considers that stamp tax has been underpaid.
Reliefs and exemptions
- A number of existing rules and/or exemptions would be retained as they are currently (or may be clarified or improved) including:
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- The Companies Act prohibition on cancellation schemes of arrangement;
- The Growth Market Exemption (which applies, for example to AIM-listed shares);
- Group relief for transfers within a corporate group – the current stamp duty rules would be extended to transfers of dematerialised shares;
- Intermediaries Relief (for approved intermediaries such as market makers);
- Reliefs for stock lending arrangements and repos; and
- Reconstruction Relief/Acquisition Relief (most commonly used for new holding companies going on top of corporate groups), with these reliefs in particular needing to be adapted and clarified to operate by self-assessment but expected to be on broadly the same terms as now.
- Reliefs would be self-assessed by the taxpayer as part of the online filing process, rather than the time-consuming adjudication by HMRC under the current stamp duty regime. It is expected that the reliefs would then be subject to provisions enabling HMRC audit/review after the claim has been made.
Other points
- A few redundant pieces of legislation would go, including the end to the "transfers in contemplation of sale" rules that causes totally unneeded complexity on a number of transaction, including on IPOs.
- The 1.5% charge for clearance services and depositary receipts are not covered by this consultation – if the reforms are taken forward, there would be a further policy consultation on the 1.5% charge.
Next steps
There is no comment in the consultation on the timing of the reforms. The current policy consultation closes in June this year, and there would then need to be a further consultation on technical aspects and legislation, meaning that if taken forward, the changes likely would take effect in 2024 or 2025.
Originally published 04 May 2023
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