Modernisation of Stamp Taxes on Share Transfers

HMRC have published a consultation on specific proposals to replace stamp duty and stamp duty reserve tax with a single new self-assessed tax

Proposals to replace stamp duty on shares

Following on from the July 2020 Call for Evidence on the modernisation of stamp duties on shares, HMRC have published a consultation on specific proposals for a single new tax to replace stamp duty and stamp duty reserve tax (SDRT). The proposals published on 27 April 2023 aim to replace 19th century stamp duty legislation and processes with a new self-assessed digital tax, but without causing market disruption by making radical changes to the collection of tax on transactions which are currently processed through CREST. The new tax will borrow features of SDRT and stamp duty land tax (SDLT), particularly in its administration.

Application of the new tax

There is no proposal to change the 0.5 percent rate of tax and the tax base will fundamentally remain shares and debt with equity characteristics, but narrowed slightly by specifically excluding: non-UK shares (it appears irrespective of where the share register is kept); the grant of options and warrants (their transfer will be taxable); and transfers of partnership interests, albeit with legislation to ensure shares are not put into partnership wrappers with a view to avoiding the tax. However, the current £1,000 threshold for paying stamp duty will not be retained on the basis that this was introduced to remove the administrative burden of stamp duty. This will not be a feature of the new tax.

Like SDRT, the consideration chargeable to the new tax will be money or money’s worth and the tax point will be the date an agreement for a sale of shares becomes unconditional (for stamp duty, it is currently the date the transfer is executed).

Problems arising in stamp duty from chargeable consideration not being finalised by completion (e.g. because completion accounts have not been finalised or there is an earn-out) will be avoided by having a system similar to that in SDLT – tax is paid on an estimate and then adjusted, but it will be possible to defer tax for up to two years on future payments that will still be uncertain after six months.

There is no plan to significantly change the specific reliefs and exemptions currently available in stamp duty and SDRT, but the proposal is to make the new legislation clearer, including defining concepts currently understood through case law.

Compliance and administration

The new tax will be collected automatically in CREST for transactions undertaken in CREST but otherwise there will be an HMRC portal through which an electronic return is to be filed. Once any tax is paid through the portal, a unique transaction reference number will be automatically generated which can then be provided to the registrar to update the company share register – the link to registration is to be maintained as it is in SDLT.

The tax will be due within 14 days of the taxpoint and will be subject to the usual four, six or 20 year time limits for Revenue enquiries and assessments and a new penalties regime for failure to file a return or pay the tax will be similar to SDRT.

Impact of proposals

The idea is that the proposals will not increase the amount of tax payable and will speed up share registration for the majority of transactions so should have a positive impact for most taxpayers. However, there will likely be collateral damage for some or missed opportunities further to improve the tax so it is important that any concerns are raised before the consultation closes on 22 June 2023. Taxpayers can respond directly or by contacting the authors of this article for consideration for inclusion in KPMG in the UK’s response. The deadline for responses is 22 June 2023.