.png)
The complex stamp tax rules could be simplified to create a single tax, removing some headaches for accountants, explain Ben Jones, co-head of global tax, and Colin Askew and Helen Mackey, tax partners at Eversheds Sutherlan
Ben Jones, Co-head of global tax, Eversheds Sutherland
As part of the tax administration and maintenance day on 27 April 2023, HMRC launched a consultation on proposals to modernise the stamp taxes on shares framework.
The central proposal in the consultation is the replacement of the existing framework of both stamp duty and stamp duty reserve tax (SDRT) with a single tax on securities.
The consultation seeks views on proposals for the assessment and administration of any such single tax and proposals for the key elements of the tax, including liability, tax base, geographical scope, compliance regime and exemptions and reliefs.
The government has been considering reforms in this area for a number of years. The Office for Tax Simplification recommended the modernisation and digitalisation of stamp duty in a report issued in 2017, which was followed by a 2018 HMRC consultation on the consideration rules for stamp taxes.
In 2020 HMRC published a call for evidence on the guiding design principles and potential options for modernising the stamp taxes on shares framework and November 2021 saw the establishment of a joint HMRC and industry working group which informed the proposals outlined in the new consultation.
Proposals
The key features of the proposed single tax are set out below.
The new single tax would be self-assessed, with tax either collected through CREST (for transactions which currently have their tax collected through CREST under SDRT), or through a new online portal.
Company registrars would be able to register legal ownership upon receipt of a unique transaction reference number (UTRN), which would be issued immediately through the online portal once any tax due has been paid.
This proposed process would helpfully streamline the current stamp duty process, reducing delays in registering changes in ownership and avoiding the need to manage consecutive transfers by adopting a ‘declaration of trust route’.
For CREST transactions the SDRT liable and accountable persons rules would be kept in place, meaning the purchaser would be the liable person and the accountable person would be the purchaser or another person depending on the facts of the transaction. For non-CREST transactions, the purchaser would become the liable and accountable person.
The current worldwide SDRT geographical scope rules would apply, meaning the single tax would apply to UK securities no matter where they are traded and no matter where the parties involved are based. This would provide much-needed simplification and remove common practical complications (such as the need to sign particular documents outside the UK).
The single tax would apply to non-government equity in UK incorporated companies, including stock and bonds with ‘equity like features’ (which would be defined along similar lines to the loan capital exemption).
Any legislation for a new single tax would specify that the granting of a security interest is out of scope; this will provide welcome comfort to taxpayers.
The accountable date would be 14 days from a single charging point, which would either be at the point of agreement or, where there are conditions on the agreement, the date when those conditions are fulfilled, with an overall two-year time limit.
Possibility of deferment
The stamp duty process for uncertain and unascertainable consideration would be replaced with a simpler approach based on the existing SDRT rules, including the possibility of deferral (but with a time limit of two years for deferment) and adjustment based on the final position.
This would be a positive change, ensuring that the total tax payable more accurately reflects the final consideration and enabling more flexibility to deal with different consideration structures encountered in practice.
The single tax would use the current SDRT definition of consideration as money or money’s worth, subject to specific reliefs or exemptions for areas that are currently out of scope of stamp duty.
The £1,000 de minimis that currently exists for stamp duty would be removed, but other existing reliefs, such as stamp duty group relief, reconstruction and acquisition reliefs and the growth market exemption would apply to the single tax (subject to certain amendments).
The consultation’s proposal to specifically carve partnership interests out of scope of the single tax (subject to anti-avoidance legislation to prevent partnership interests being used as a method of transferring share ownership in order to avoid the single tax) would helpfully simplify an area which can cause problems in practice at present.
Comment
The proposals outlined in the consultation largely focus on merging and simplifying the stamp duty and SDRT regimes, rather than representing a more radical departure.
Nevertheless, a single tax would be a significant reform, which would helpfully remove the discrepancies between stamp duty and SDRT which currently make transactions more complex and result in hurdles for taxpayers to overcome in order to ensure the correct treatment.
HMRC has indicated that, if reform is taken forward, it is likely there would be a further policy consultation to deal with the 1.5% charge, as well as a technical consultation on any draft legislation.
In the event the proposals in the consultation are pursued, it is therefore likely to be some time before they are enacted. However, the proposals would significantly shake up the current stamp taxes on shares framework and professional advisors will therefore be paying close attention to developments in this area.
About the authors
Ben Jones, co-head of global tax, Colin Askew, tax partner and Helen Mackey, tax partner at Eversheds Sutherland
Comments