UK draft legislation for new single tax on share transfers published

The legislation was published on Monday – on the Treasury’s so called ‘Legislation Day’, as part of a collection of draft legislation and technical tax documents earmarked for inclusion in the next Finance Bill.

According to a policy paper published alongside the draft legislation, the new tax will be known as the Securities Transfer Tax (STT) and will be a single, digital, self-assessed tax on the transfer of shares and securities. The STT will be introduced in 2027, with an update on the commencement date expected this autumn. Transitional arrangements will apply for a period of four years for transfers of securities entered into before the commencement date, where payment of stamp duty or SDRT is payable after the commencement date.  

Under the STT, transfers of shares and securities will be taxed under a comprehensive digital system, removing the need for non-electronic instruments and paper-based reporting and payment processes. The main rate of STT will remain at 0.5% of the value of the consideration paid for the securities. A higher 1.5% rate will continue to apply in limited circumstances. The introduction of the STT is part of the government’s objective to simplify and modernise the UK’s tax system.

Peter Morley, corporate tax expert at Pinsent Masons, welcomed the introduction of the STT and abolition of stamp duty as long overdue reform: “Transactional tax advisers have been calling for reform of stamp duty for some time, so it is welcome news that finally, that day is here. The STT is a much overdue replacement, bringing stamp duty into the modern age. The Covid-19 pandemic accelerated the process for electronic filing of stock transfer forms, but the STT will now be entirely electronic.”

The publication of draft legislation follows a prolonged seven and a half year period of review of the taxation of transfers of shares and securities, including multiple consultations. Detailed proposals for the new STT were published last year.

“There is a lot of detail to work through in the 106 pages of legislation,” said Morley. “Tax advisers will want to review this carefully to see what changes have crept in. On a first read, the key reliefs remain, but they will need to be scrutinised to see if the conditions are all the same. Careful scrutiny will also be needed to establish whether any unforeseen changes may be hidden in the detail. For example, STT is due on deferred contingent consideration, but payment can be deferred until the amount can be ascertained. This seems to include consideration even if it was wholly unascertainable at the time of the agreement, which brings previously unquantifiable amounts newly in scope.”

Under the new STT, the buyer will be primarily liable to pay the tax. Where STT returns are filed by an agent on behalf the buyer, the agent would become an “accountable person” and would be jointly and severally liable for the tax.

Morley said: “Despite concerns being raised by advisers and stakeholders during the extensive consultation period, it seems that the draft legislation still contains provisions which would expose advisers to joint and several liability where they file STT returns on behalf of their clients. Unless the legislation is amended during the technical consultation period, this is likely to end the practice of advisers submitting STT returns on behalf of clients, which may be welcome for them, but less for businesses.”