New UK Securities Transfer Tax

Draft legislation has been published for the new Securities Transfer Tax (STT) regime, as part of the Government’s “modernisation of the Stamp Taxes on Shares framework”. 

STT will operate as a single tax, replacing stamp duty (which applies to instruments of transfer) and stamp duty reserve tax (SDRT, which in practice is principally paid on purchases of publicly traded securities). The Government aims to introduce STT in 2027.

The draft legislation largely appears to achieve its aim of simplifying the stamp duty and SDRT regimes into a “single, clear, self-assessed and digital first tax”, retaining the key reliefs and exemptions relied on in practice. 

What will the STT charge apply to?

The main STT charge will apply to transfers of “chargeable securities”, including shares in UK-incorporated companies, equity-like debt instruments in UK-incorporated companies, and units in unit trusts schemes (as well as interests in and rights to acquire any of those). The main STT charge will apply at a rate of 0.5% of the amount or market value of the transfer consideration (or, in some cases, 0.5% of the market value of the securities in question), and will be payable by the buyer on a self-assessment basis.

A higher rate STT charge of 1.5% (as is the case currently for both stamp duty and SDRT) will generally apply where chargeable securities are transferred to a clearance service (allowing them to be traded (free of STT) by book entry only) or a depositary receipt service (allowing depositary receipts to be traded (free of STT) instead of the shares themselves).

For electronic (on-market) transactions, the STT charge will arise on entering into the agreement, or when the agreement becomes unconditional if later. For non-electronic (off-market) transactions, the STT charge will arise on the later of entering into the agreement, when the agreement becomes unconditional or when the transfer is “substantially completed” (including where all or substantially all of the consideration is paid or when voting or economic rights are exercised by the buyer). 

The clear definition of chargeable securities (as well as a rule confirming territorial scope) brings welcome simplification to the scope of STT, meaning that shares (or equity-like debt interests) in non-UK-incorporated companies are outside the scope of the tax, regardless of where documents are executed or the transaction is effected, and regardless of whether the company maintains a share register in the UK. Similarly to the current position, depositary interests in shares or equity-like debt interests in a non-UK-incorporated but UK resident company will be within the scope of STT.

Another key simplification relates to transfers of partnership interests: these will be subject to STT only if the partnership property includes chargeable securities held as partnership property as a result of arrangements with a main purpose of avoiding STT (under current rules, transfers are in theory within the scope of stamp duty to the extent the partnership holds stock or marketable securities). This should remove the need for detailed stamp duty risk allocation provisions in fund secondary transactions.

Uncertain consideration

If the amount or value of the consideration is not known when the charge arises, STT will be payable on a “reasonable estimate” of the consideration, with a reassessment when the consideration is determined. This replaces the “contingency principle” for stamp duty, which currently means that unascertainable consideration subject to a maximum (as is typically the case for a private company earnout) is subject to stamp duty on the maximum amount, but effectively leaves in place the current “wait and see” approach for stamp duty on consideration which is “ascertainable” but not yet ascertained (as is the case on “completion accounts” transactions).

Where the amount or value of the consideration is dependent on uncertain future events and is not reasonably expected to become clear within six months, a claim can be made to defer the STT in respect of that element of the consideration, until the amount or value of the consideration becomes clear (or the expiry of a four-year period if earlier, after which further deferrals can be sought up to a 12-year maximum). 

Reliefs and exemptions

The key stamp duty and SDRT reliefs (for intra-group transfers and company reconstructions, for example) will also apply to STT. Bringing the two existing taxes together as a single tax regime means some of the discrepancies in the detail between similar reliefs for stamp duty and SDRT are removed.

For example, “exempt listing transfers” (where a company’s chargeable securities or depositary interests are being admitted to a new stock exchange for the first time) are exempt from the existing 1.5% SDRT charge where no other chargeable securities are listed on the relevant exchange at the time; the stamp duty equivalent exemption for “exempt listing instruments” also requires that the company has no loan capital (including any exempt loan capital) listed on the relevant exchange. The stamp duty relief would not therefore be available under current rules for a first listing on the NYSE, for example, if the company has plain vanilla bonds trading on the NYSE, whereas the SDRT relief would be available. 

The equivalent STT relief for “listing arrangements” removes this difference by requiring only that no chargeable securities are listed on the relevant exchange at the time of the transfer. 

Some additional exemptions are included in the draft legislation which clarify certain points of practice under stamp duty and SDRT, for example for transfers where there is no change in beneficial ownership (where the main STT charge will not apply). 

On the other hand, the £1,000 de minimis exemption that currently exists for stamp duty will be removed (and rounding up to the nearest £5 for stamp duty will no longer be required). 

New reporting system

All transfers within scope will need to be reported to HMRC, unless an exemption applies and the exemption is not one which needs to be claimed. The deadline will be 14 days for electronic transactions and 30 days for other relevant transactions.

A new online portal will be launched for reporting and payment, with a unique transaction reference number (UTRN) issued immediately on payment or where a relief is claimed. Company registrars will be able to register changes in ownership immediately on receipt of a UTRN. This is a welcome improvement on the current position, where it can often take a number of weeks before stamping is confirmed and the share register can be updated. Nevertheless, where multiple transfers of the same company’s shares are required on the same day, it may be that the requirement for a UTRN at each stage would cause a timing difficulty. In that case, we expect the declaration of trust route will continue to provide a practical solution (whereby beneficial interest in the securities is transferred separately to legal title, allowing the register of members to be updated immediately). 

Other simplifications

The draft legislation brings a number of other simplifications, including, for example, that the grant of options and warrants will no longer fall within scope (previously, the grant of an option technically fell within the scope of stamp duty), and the removal of the charge on instruments executed “in contemplation of a sale”.

Points to look out for in HMRC guidance

Draft guidance has not yet been published, but there are a number of things to look out for. For example, current practice on transfer schemes of arrangement requires prior HMRC confirmation that the court order is not stampable, to allow the order to be registered at Companies House. Given that, unlike stamp duty, STT will be an assessable tax, we would hope this procedure will no longer be required.

Another simplification for transfer schemes is that the current practice of having two “block transfer forms” to effect the transfers (one being for low-value transfers to take advantage of the £1,000 de minimis exemption for stamp duty), will presumably fall away, so that all certificated shares are transferred under a single block transfer form.

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