The Government has published a response to its consultation, ‘Modernisation of the Stamp Taxes on Shares Framework’. Draft legislation for a new single tax on securities to replace Stamp Duty and Stamp Duty Reserve Tax (SDRT) will be published in due course. The new single tax and an online portal to handle reporting transactions should be in place by 2027.
Background
As taxes, Stamp Duty and Stamp Duty Reserve Tax (SDRT) are interdependent. They are collectively known as Stamp Taxes on Shares (STS).
The past few years have seen calls for Stamp Duty, a paper-based regime, to be updated. The Office of Tax Simplification (OTS) recommended that Stamp Duty be digitised and modernised in its 2017 report.
An initial consultation was held in November 2018. This concluded that the STS Framework as a whole needed to be looked at, rather than changing a single aspect. A Call for evidence was published in July 2020, which helped establish some guiding principles in modernising STS, with an industry Working Group being established in November 2021.
In April 2023, a Consultation document was published that sought views on potential areas for reform in relation to the 0.5% principal charging regime. It asked 50 questions on the following three areas:
- Whether there should be a single tax on securities to replace Stamp Duty and SDRT.
- Proposals for assessing and administering any new single tax on securities.
- Proposals on the key elements of any new single tax.
The project’s overall objective has been to make it simpler for taxpayers to deal with the Stamp Taxes on Shares (STS) regime.
Responses
The consultation received 65 written responses. In addition, comments were made during four stakeholder-requested consultation meetings.
Highlights from the responses include:
- 94% of responses favoured there being a single tax on securities, with 85% favouring the use of an online portal.
- 64% of those responding supported requiring a Unique Transaction Reference Number (UTRN) to be presented to registrars as an assurance measure before share ownership can be updated.
- Many respondents raised concerns about the UTRN not being issued until after the payment of tax, because of the potential delays to same-day transfers of share ownership.
- 95% of respondents agreed that the purchaser should be the liable and accountable person for non-CREST transactions.
- 74% of respondents were against a single 14-day accountable date. Concerns related to complex transactions involving debt finance and valuations, as well as holiday periods and bank holidays.
- Applying the existing geographical scope of SDRT (which is not the same as for Stamp Duty) to the new single tax was supported by 64% of respondents.
- Concerns were raised about the clarity of this. Using UK incorporation as the sole determining factor for tax applicability was put forward.
- The proposed tax base, focusing on non-government equity in UK companies, was generally supported (68%). There were calls for absolute clarity on what is and is not included.
- Concerns about tax avoidance were raised about call options and warrants, particularly 'deep in the money' options.
- 85% of respondents supported the proposal to allow deferment for uncertain consideration with a two-year limit. Some suggested extending this.
- 86% of respondents opposed the removal of the current £1,000 de minimis, chiefly because of the additional burden of company law requiring filling out a stock transfer form in addition to reporting the transaction through the portal.
- 74% of respondents agreed that the compliance regime outlined in the consultation is appropriate.
Next steps
The Government is proceeding with the development of a new single tax on securities. The aim is to introduce it, its legislative framework, and the portal in 2027.
The Government intends to proceed with the majority of its proposals, with a few exceptions based on the consultation feedback and subsequent work on the portal’s design. These include:
- The UTRN will be issued when the tax return is submitted on the portal, rather than waiting until after the tax has been paid.
- The purchaser will still be the liable person. The accountable person will now be the purchaser or another person, depending on the facts of the transaction, the same as for SDRT currently.
- Different accountable dates will be allowed: 14 days for transfers carried out in electronic settlement systems and 30 days for those taking place outside electronic settlement systems.
- The two-year deferment backstop will be extended to four years with the possibility of extension applications up to a maximum of 12 years.
- The £1,000 de minimis will still be removed; however, the Government plans for the online portal to provide the facility to handle the filings required by company law.
- Notification penalties will be changed to a percentage-based regime.
A further consultation that covers the 1.5% charge regime has been published. This higher rate charge applies in certain circumstances when UK securities are transferred overseas.
HMRC is designing and building the online service referred to in the consultation. This will allow for reporting and paying the new single tax.
External link
HMRC: Consultation outcome: Stamp Taxes on Shares modernisation