A new single tax on transfers of shares and securities will be introduced to replace the current separate taxes of stamp duty and stamp duty reserve tax (SDRT), HM Revenue and Customs (HMRC) has confirmed.
The announcement was made in HMRC’s response document to its Spring 2023 consultation looking at modernising the current stamp taxes on shares framework. It is currently proposed that the new tax will be introduced in 2027.
Corporate tax expert Jamie Robson of Pinsent Masons welcomed the announcement. “At a high level, the proposed change should present a real administrative simplification – in particular in respect of private M&A transactions,” he said.
HMRC will introduce a new online payment system for reporting and payment of the new tax on share transfers, digitising the current system for paper-based transactions. Tax on electronic share transfers will continue to be collected through the UK’s Central Securities Depositary (CREST) system. HMRC has confirmed that it will maintain the link between the tax and company registers, whereby registrars cannot update company registers until evidence of the reporting or payment of the tax has been received. HMRC considers this link important to maintain high levels of compliance.
However, in response to concerns that maintaining this link would lead to undue delays in registering transfers, HMRC has announced that it will be possible to register changes in ownership immediately following submission of the online tax return, rather than having to wait until payment of the tax, as previously envisaged. Upon submission of the online return, HMRC will issue a unique transaction reference number (UTRN) which will allow company registers to be updated.
Robson said that this clarification was “crucial” and would “safeguard the ability for transfers of share ownership to be registered on the same day that the transfers are made.”
Stamp duty is a tax on documents transferring shares and securities, normally a stock transfer form. Prior to the Covid-19 pandemic, original documents had to be sent to HMRC’s stamp office to be physically stamped. Stamp duty is payable at a rate of 0.5% of the value of the shares being transferred, within 30 days of the transfer document being signed.
No stamp duty is payable when shares are transferred for less than £1,000. There is no direct obligation to pay stamp duty, but unstamped or insufficiently stamped documents are not admissible evidence for civil court proceedings and a transfer of shares cannot be registered at Companies House unless the transfer document has been properly stamped.
SDRT is a tax on agreements to transfer chargeable securities, including stocks, shares and certain loan capital. SDRT is also payable at 0.5% of the value of the securities. Most shares are now transferred electronically through CREST, which is also used to collect SDRT. This means that SDRT, rather than stamp duty, is paid on most share transfers.
HMRC has confirmed that it intends to remove the current £1,000 exemption threshold, notwithstanding 86% of respondents to the consultation advocating for its retention. The exemption was originally introduced to reduce administrative burdens for small transactions – HMRC has said that the new online portal will be designed to remove administrative burdens, therefore negating the need for a ‘de minimis’ threshold.
HMRC has modified its proposals where the consideration for the transfer is uncertain and unascertainable. The proposed two-year time limit for deferment will be extended to four years initially, allowing for extension applications beyond the four-year period up to a maximum of 12 years. Deferment requests will be made online and will be applied where the criteria are met. No formal valuations are expected to be included as part of the reporting process. The point at which the new tax will become chargeable will be the earlier of substantial performance or completion, with different deadlines for transfers carried out in the electronic settlement systems (14 days) and for non-electronic transfers (30 days).
“The revised proposals in relation to deferment requests are welcome, although there will be some detail to work through,” said Robson.
The new single tax will be mandatory and the purchaser will be liable for payment. However, HMRC has confirmed that another person can be held to be the ‘accountable person’ depending on the facts of the transaction. HMRC has also revised its approach to penalties, opting for a new percentage-based penalty regime for late notification, rather than a combination of fixed and percentage-based penalties as originally proposed.
“On the basis that the new tax will be mandatory and specifically assessable on a purchaser of securities, we expect increased HMRC activity in this area – particularly, given that HMRC has beefed-up the proposed penalty regime – resulting in penalties being immediately tax based, including where a relief is claimed. Ultimately, we will not know the full impact of the new regime until draft legislation is published. An eye will have to be kept on how various elements of the new tax develop, since while the regime may be simplified overall, there do look to be traps for the unwary,” Robson said.
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