The UK has taken another step forward with its plans to modernise stamp taxes on shares (effectively replacing Stamp Duty and Stamp Duty Reserve Tax (SDRT) with a new tax).
In a consultation outcome document published on 28 April 2025, HMRC has confirmed that it will introduce a new single self-assessment tax from 2027, replicating aspects of the existing regimes into a new framework. This new framework aims to streamline the existing regimes but with changes to the base, territorial scope, charging points, and exemptions for certain transactions.
We have prepared a short overview of the proposals and have pulled out some interesting points for discussion below.
Base
Introducing a new tax has presented an opportunity to streamline the scope of stamp taxes, eliminating the differences that have persisted in the Stamp Duty and SDRT regimes. Under the new approach, the single tax will apply to transfers of non-government equity in UK companies, including stock and bonds with equity-like features. The definition of equity-like features will be based on the loan capital exemption but apparently legislated in a different manner. The drafting detail will be crucial to ensure previously exempt loan capital is not captured while mitigating opportunities to disguise equity investments as debt.
Territorial scope
The Government has listened to feedback and proposes that only transactions involving UK securities will be in scope regardless of where they are traded or where the parties are based. The determining factor will be whether the shares are in a UK incorporated company, removing the need to identify the location of the share register. These proposals should simplify matters and remove the current legislative uncertainty regarding the company's location and, in a digital age, its share register. This should also render unnecessary current practice whereby transfers of non-UK incorporated shares are often executed outside of the UK in order to mitigate a technical charge to stamp duty.
Charging point
Under the new tax, the Government has stated that the charging point will be the earlier of substantial performance or completion. This differs from the existing regimes, which have two different charging points (broadly on execution for stamp duty and on agreement for SDRT). The original proposals had suggested that the point of agreement could be used as the charging point, however the Government has listened to feedback that this would have presented challenges for transfers involving unlisted transactions, especially when completion does not occur.
While the concept of substantial performance will be familiar to those involved in land transfers for Stamp Duty Land Tax (SDLT) purposes, it will take a different meaning for share transfers. The Government has (loosely) outlined the definition of substantial performance to be the following.
- When the details of the transfer are submitted and matched within an electronic settlement system.
- When the benefit of those shares is exercisable by the purchaser (or their nominee/intermediary) for shares transferred outside of a settlement system.
Payment (accountable) date
The Government has confirmed that there will be two different payment dates in the new framework. For transfers carried out in electronic settlement systems payment will be due within 14 days, and for those carried out outside of electronic settlement systems it will be due within 30 days of the earlier of substantial performance or completion of the transaction. This is a practical approach that takes into account transactions involving non-listed entities that can have more complexities and need more time before payment is made.
Consideration
The Government proposes adopting the SDRT definition of consideration, defined as "money or money's worth". For situations where consideration is contingent, uncertain, and unascertainable, the Government plans to adopt the SDLT rules, however the Government has listened to feedback and has extended its proposed two-year deferment backstop to a four-year period (with an option to apply for an extension of up to 12 years). This is a welcome acknowledgement that circumstances arise where the consideration is dependent on uncertain future events, say in an earn-out situation, where the period may run for longer than a couple of years.
Secondary transactions – transfer of partnership interests out of scope
Fund managers and investors involved in secondary sales of fund interests will welcome the confirmation that partnership interests will be out of scope of the new tax. The precise details are yet to be finalised, but the Government states it will exclude partnership interests either through its legislative drafting or via a specific relief or exemption.
This pragmatic approach reflects current practice where stamp duty is not typically paid on the transfer of partnership interests, either where the transfer is not submitted for stamping or where the partnership interest has no UK nexus and the transfer is executed outside of the UK.
The Government also intends to introduce anti-avoidance legislation to prevent partnership interests from being used to transfer otherwise taxable share transfers. It is hoped these measures will be suitably targeted. Otherwise, a broad rule risks bringing partnership transfers that have not typically been assessable into scope, and with that a series of practical challenges would need to be overcome such as the identification and valuation of underlying shares held by the fund.
Consultation on 1.5% SDRT charge
The Government has also issued a consultation on the 1.5% SDRT charge for shares transferred to a clearance service or their nominee and transfers to a depository receipt issuer or their nominee. The Government is seeking views on how it can make this aspect of the stamp taxes regime as clear and easy to understand as possible. This follows some of the uncertainty created following Brexit which resulted in statutory footing being given to ensure stamp duty or SDRT did not arise on the issuance or transfer of securities in capital raising arrangements. The focus of the consultation is on "simplicity, ease of use and clarity" rather than major reform.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
