Out-Law News 3 min. read

HMRC plans new single tax on securities

The UK government’s plan to replace the separate taxes of stamp duty and stamp duty reserve tax (SDRT) with a single tax on securities has been welcomed by one legal expert.

Jamie Robson of Pinsent Masons said: “A single tax on securities that is paid and processed electronically will be a welcome development, leading to simplification and modernisation of the current stamp taxes system.”

His comments came after HM Revenue & Customs (HMRC) opened a consultation looking at modernising the current stamp taxes on shares framework. According to the consultation document, the new tax will be paid by the buyer and self-assessed. 

Tax on electronic share transfers will continue to be collected through the UK’s Central Securities Depositary (CREST) system. For other share transfers, tax will be paid using a new online payment system, similar to the current system for stamp duty land tax, payable on land transactions.

HMRC proposes maintaining the link between the tax and company registrars so that company registers cannot be updated until the tax has been paid. HMRC said that the link to registrars would incentivise the reporting and payment of tax on share transfers and would be a simple and cost-effective way to maintain high levels of compliance.

“One of the key issues for businesses with the current stamp duty system is the delay and uncertainty created by the need to wait for transfer documents to be “stamped” before company books can be written up and the transfer registered at Companies House. Ideally, the link between stamp duty and updating registers would be entirely removed,” said Robson.

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 £1000. 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.

According to the new consultation, HMRC proposes removing the current £1000 exemption threshold for stamp duty, which was originally introduced to reduce administrative burdens for small transactions. The exemption is claimed by making a declaration on the transfer document, which is then sent to the company registrar to update the register.

The threshold for SDRT is £1 – a higher threshold was considered unnecessary, since SDRT is largely processed electronically. HMRC considers that the stamp duty threshold is no longer needed, since the new digital system will be simpler to apply and “completing an online form would be no more burdensome” than completing the current declaration.

Robson said: “It would be administratively unhelpful and a backward step in terms of simplification if tax needs to be paid and returns submitted on all transactions over £1. Ultimately, it would help the competitiveness of the UK to have a larger de minimis threshold rather than to remove it. On that basis, it is recommended that the threshold is raised to £150,000 to match the threshold for paying SDLT on commercial property transactions.”

HMRC is also proposing that the new tax will have a single charging point, where tax will become payable either at the date of the agreement to transfer the shares, or the date when any conditions on the transfer are satisfied within an overall 2-year time limit from the date of the agreement. Currently, stamp duty and SDRT have different charging points. For stamp duty - when the transfer document is signed and for SDRT- when the agreement to transfer is made.

“It is disappointing that the government is proposing that there will be a single charging point. This is an area where there may be valid reasons to maintain a difference between certified and uncertified shares. For uncertified share transfers, the funds to pay the new tax may simply not be available until the transfer has completed and therefore, it would be problematic and could create significant funding issues if the charging point arose at an earlier point,” said Robson.

HMRC has not yet confirmed when the new tax will be introduced. The consultation closes on 22 June.

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