Stamp Duty: soon a tax on all shares?

Securities Transfer Tax – the government’s proposed replacement for Stamp Duty on shares and securities

The UK government has published draft legislation with the aim of replacing Stamp Duty on shares and securities as early as 2027.

The proposed new tax, known as Securities Transfer Tax (“STT”), will also replace the existing Stamp Duty Reserve Tax (“SDRT”), thereby substituting two interdependent tax systems for one new regime. The government hopes that this will “improve certainty, efficiency and ease of use for taxpayers and financial market participants.”

Application:

STT will apply to the transfer of chargeable securities to another person for consideration in money or money’s worth. Examples of chargeable securities include shares in UK-incorporated companies, equity-like debt instruments in UK-incorporated companies, and units in unit trusts. The charge to STT will apply irrespective of where the parties are resident or situated, or where the transaction is taking place.

Examples of transactions which will not attract STT include transfers of shares and equity-like debt instruments in non-UK-incorporated companies and most transfers of partnership interests. Crucially though, where chargeable securities are held by a partnership as partnership property due to any arrangement(s) whose main purpose is to avoid STT, any transfer of this property will incur a charge to STT.

The main charge to STT will be levied at a rate of 0.5% of the amount or market value of the consideration in most transactions. There is also a higher-rate charge, which will be levied at a rate of 1.5%, and which will apply where chargeable securities are transferred to a clearance service provider or a depositary receipt issuer. Whilst the circumstances which attract the higher-rate charge do not substantially differ from the current regime, it should be noted that the higher-rate charge for bearer instruments is to be removed. Furthermore, STT liability in both main rate and higher-rate transactions will be rounded to the nearest whole penny rather than the nearest £5.

Liability:

As was the case with stamp duty and SDRT, liability for STT falls on the buyer. Unlike the previous regime though, where an ‘accountable person’ makes the return and pays the tax, they may be jointly and severally liable for the STT.

An accountable person could be, for example, a system operator where a transfer is made by means of an electronic transfer system (an ‘electronic transaction’), or anybody who has been authorised by the buyer to act as their agent in relation to a non-electronic transaction. In relation to higher-rate transactions, the transferee of the chargeable securities will be an accountable person. Importantly, an accountable person will not be liable for STT if they can show that they have taken all reasonable steps to obtain the amount of the tax from the liable person.

Payment of STT must be made within 30 days for non-electronic transactions or 14 days for electronic transactions. The deadline will be set with reference to the date on which the agreement for the transfer is made or, where an agreement is conditional, upon satisfaction of the relevant conditions.

Where STT has been paid erroneously, a claim for repayment can be made, provided this is within four years of the original payment.

Uncertain Consideration:

Where a transfer of chargeable securities for uncertain consideration takes place, the buyer (and/or accountable person) will be liable for STT based on a “reasonable estimate” of the consideration. Once the actual amount of consideration is ascertained, an adjustment to the STT liability will be made and any difference must be accounted for. This represents a marked departure from the current approach, wherein payment of stamp duty is usually deferred until the amount of consideration is agreed upon.

Notably though, where the amount of consideration is uncertain due to its dependence on future events (for example preparation of completion accounts or earn-out calculations) and is not reasonably expected to become certain within six months, a claim may be made to defer STT until the amount is ascertained, or (if earlier) until four years have elapsed from the date of the transfer.

Exemptions, reliefs, and STT returns:

The exemptions and reliefs that will be available for STT largely mirror those that are currently available for stamp duty and SDRT with, among others, reliefs for intra-group transfers and company reconstructions/acquisitions being carried forward to the new regime.

That being said, there are some notable changes to be aware of. Certain exemptions are set to be removed, including the £1,000 de minimis exemption and the loan capital exemption (which will effectively be redundant, as transfers of pure debt will not fall within the scope of STT). The abolition of the £1,000 de minimis exemption will see a substantial increase in the number of transactions which attract STT.

From a procedural standpoint, the onus on HMRC to ascertain available exemptions and reliefs is to be shifted to the taxpayer via a new STT return. This must be completed and returned to HMRC in order for most exemptions to be claimed. The deadlines for doing so are 14 days in electronic transactions or 30 days in non-electronic transactions – the same as the deadlines for the payment of STT.

Returns must be submitted via a new online portal, following which a unique taxpayer reference number will be generated. This number will need to be provided in order for company books to be written up. Returns will be amendable within a 12-month period, though this can be extended where payment of STT has been deferred or made with reference to a reasonable estimate, as discussed above.

Enforcement and Compliance:

A further practical consequence of the proposed regime is that HMRC’s will have direct enforcement and compliance powers. Under the old regime, enforcement was, to a large extent indirect with unstamped instruments not being relied upon in court proceedings or capable of registration in statutory registers. This created a commercial incentive to pay the duty. STT moves away from that model by requiring returns and payments within fixed time limits, supported by HMRC compliance powers, penalties and interest in the event of non-compliance. This should make the regime easier for HMRC to administer

Impact:

The most eye-catching change from the perspective of agents and advisers will be the introduction of joint and several liability for accountable persons. This may lead to a shift in practice, with buyers being advised to file STT returns themselves via the proposed online portal in an effort to avoid unnecessary risk on the part of the advisers, particularly where further payments of duty become payable on a transaction

For now, as a firm, we will continue to monitor the progress of the proposed amendments and will work with our clients as the transition into the new STT regime commences.

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