Out-Law / Your Daily Need-To-Know

Stamp duty is a tax on documents which applies to stock transfer forms transferring shares.

It is a different tax from stamp duty land tax (SDLT), which is payable on property and land transactions in England and Northern Ireland.

Since 28 April 2014, transfers of unlisted shares and securities sold on "recognised growth markets", such as the Alternative Investment Market (AIM) and the ICAP Securities & Derivatives Exchange (ISDX), are not subject to stamp duty. Similarly, from 28 April 2014, stamp duty has also not been payable on purchases of shares in exchange traded funds.

For a document to be subject to stamp duty it must be signed in the UK, regardless of where in the world the assets are based.  A document which is signed outside the UK can be subject to stamp duty if it relates to property in the UK or anything to be done in the UK.

Original documents used to have to be sent to the Stamp Office to be physically stamped. This is no longer the case. Stamp duty is now paid electronically, with HM Revenue & Customs (HMRC) notified by email of the payment with a scanned copy of the document the duty relates to. The stamp duty must be paid and HMRC notified within 30 days of the document being signed. Missing this 30-day deadline can incur penalty charges and interest.

There is no direct obligation on a buyer of shares to pay stamp duty. However, unstamped or insufficiently stamped documents are not admissible evidence for any purpose other than during criminal court proceedings. In addition, a company secretary cannot register a share transfer unless the document has been properly stamped.

Rates

If you buy shares for more than £1,000 using a stock transfer form you have to pay stamp duty. It is calculated at 0.5% of the value of the shares, with figures rounded up to the nearest £5, and is payable when shares are transferred. It is not payable when new shares are issued.

Unstamped or insufficiently stamped documents are not admissible evidence for any purpose other than during criminal court proceedings. In addition, a company secretary cannot register a share transfer unless the document has been properly stamped

Stamp duty is not payable when shares are transferred for less than £1000 (including any connected transfers). This has to be certified by signing the back of the stock transfer form.

Stamp duty does not have to be paid on gifts of shares.

Payment of duty

Stamp duty is payable by the purchaser and must be paid within 30 days of transfer documents being signed. Failure to meet this deadline can result in penalties, interest being charged and fines.

guidance on paying stamp duty.

Share acquisitions

On a company purchase it is sometimes difficult to ascertain the exact price that will be paid for the shares because it may depend upon accounts that have not yet been drawn up. If these accounts are not available soon after a transaction the purchasing company should estimate the amount of stamp duty that will be payable and pay it within 30 days of the transaction being completed.

If a purchaser underestimates the charge, it can expect to pay interest along with any additional stamp duty. If the stamp duty is over estimated any overpayment will be repaid with interest, but at a much lower rate than that levied for underpayment. Current rates are available from the HMRC website.

Where shares are transferred in exchange for other shares, stamp duty is charged on the value at the date of the share transfer document of the shares to be issued in exchange. HMRC has published further guidance on stock transfers and stamp duty.

Group relief

Where assets are transferred between companies which are within the same group, relief may be available from stamp duty. The conditions for the relief are complex and are only considered in outline in this guide.

For the relief to be available one company must be the beneficial owner of not less than 75% of the ordinary shares of the other, or another company must be the beneficial owner of not less than 75% of the ordinary shares of each company.

A company is only the beneficial owner of at least 75% of the ordinary shares if it holds 75% of the ordinary shares, 75% of the rights to dividends and 75% of the rights to assets if the company is wound up. The ownership does not need to be direct and can be traced through other group companies.

Anti-avoidance provisions prevent the relief being available in certain circumstances. In particular, where the transfer is made in connection with an arrangement under which the transferee company will cease to be in the same group of companies as the transferor – for example, as a result of a sale out of the group of the transferee company.

Relief is obtained by emailing a letter to HMRC in the set form, usually signed by a director or the company secretary of the parent company, together with together with a scanned version of the stock transfer form and any other required documents. See HMRC guidance for more details.

Stamp duty reserve tax

Stamp duty is a tax on documents while stamp duty reserve tax (SDRT) is a tax on agreements to transfer chargeable securities. Chargeable securities include stocks, shares and certain loan capital. Again, since 28 April 2014, shares on recognised growth markets are exempt.

SDRT can apply to the same transactions as stamp duty meaning that both an agreement to transfer shares and the signed document to make the transfer can be subject to tax. However, when the transfer document is stamped within six years of the agreement, the SDRT liability is cancelled to avoid a double charge.

SDRT does not apply to the issue of new shares. Purchasers must pay SDRT at 0.5% on the purchase price of the shares.

The UK system that electronically documents transfers of shares is called CREST. CREST will collect SDRT for shares that are transferred electronically. SDRT is also relevant in the case of placings, rights issues and other Stock Exchange transactions.