Stamp duty is chargeable on instruments that transfer the beneficial interest in stock or marketable securities. Most commonly this instrument will be the stock transfer form. Where a transaction in securities is paperless then there is no stock transfer form or other instrument to which stamp duty can apply. In this case there is, instead, a charge to stamp duty reserve tax (SDRT). Stamp duty and SDRT are normally chargeable at 0.5% or 1.5% of the consideration paid or to be paid for stamp duty or for consideration in money or money’s worth in the case of SDRT.
However, there are several exceptions to these general rules that can apply to impose a stamp duty/SDRT calculated on the actual market of the shares transferred as follows:
- Transfers otherwise than on sale to clearance services or depositary receipt issuers (1.5% charge only).
- Securities transferred to a clearance service or a depositary receipt issuer as the result of the exercise of an option (1.5% charge only).
- In relation to the 0.5% stamp duty charge where property is transferred to another person by written instrument in contemplation of a sale of that property.
- Transfers of publicly listed securities to connected companies. This is the new rule contained in Clauses 46 and 47 of the Finance Bill 2019 which is supposed to be effective from Budget Day (29 October 2018) and is designed to counter “contrived arrangements” with which the government had become concerned. Listed securities are defined as securities which are regularly traded on a regulated market, a multilateral trading facility or a recognised foreign exchange.
On Budget Day, HMRC published a consultation paper which contained various other proposed changes to the rules on consideration for stamp duty and SDRT purposes in addition to the new rule for transfers of listed securities contained in the Finance Bill. These proposals are as follows:
- Extending the listed shares market value rule so that it would also apply to transactions between connected parties (whether legal or natural persons) in respect of both listed and unlisted shares. There is no present intention by the government to extend the market value rule to transfers between unconnected parties (as actually applied until 1985). Also, HMRC has stated that the existing exemptions and reliefs from stamp duty and SDRT (e.g. Section 42 Finance Act 1930 relief for transfers of shares between members of a 75% corporate group) would continue to apply.
- Amending the definition of “consideration” for stamp duty purposes so that it matches that used for SDRT purposes. The definition of consideration for SDRT purposes (“money or money’s worth”) is broader than the current stamp duty definition. The SDRT definition includes both cash and the value of any non-cash consideration that can be bought or sold in the open market. By contrast the narrower definition of consideration for stamp duty purposes includes only cash, debt and the value of marketable securities.
- Aligning the treatment of contingent, uncertain and unascertained consideration for stamp duty and SDRT purposes.
A major concern arising out of these proposals is the complications that would result for taxpayers who would henceforth need to value unlisted shares. This is often a complex and expensive exercise. There is nothing contained in the consultation paper about how such a system is likely to work in practice.
The deadline for providing comments on HMRC’s consultation paper is 30 January 2019.
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