Tax: A single tax on securities

The UK Government has published its proposals for the modernisation of stamp taxes on securities in a consultation – now closed – which is the latest step in its efforts to simplify the administration of stamp taxes. Under the new proposals, the existing stamp taxes on securities – stamp duty and stamp duty reserve tax (“SDRT”) – would be replaced with a combined single tax.

Sums due

The new single tax is to be charged at the same rate as its predecessors: 0.5% of the chargeable consideration for the securities. The 1.5% charge on clearance services and depositary receipts is not covered by the proposals, and HMRC has confirmed that a further consultation will take place for that charge if the reforms go ahead.

Under the new proposals, the chargeable consideration will include “money or money’s worth”, as is the case for SDRT. The legislation will include reliefs and exemptions to carve out transactions which are not intended to be in scope (for example, obligations to pay pension benefits).

The rules pertaining to contingent consideration will be simplified, such that tax will be charged upfront on the full amount of any fixed contingent consideration, and on a reasonable estimate of any variable or uncertain consideration. As with SDLT, it will be possible to apply for a deferral of payment for up to two years in certain circumstances.

Controversially, the Government has proposed to remove the £1,000 de minimis threshold that currently exists for stamp duty. HMRC considers that the threshold will become unnecessary, as the new digital system should be simpler to apply, and in any case, not any more burdensome than completing the current declaration. It remains to be seen whether this will be the case, but any additional administrative burden imposed on low value transactions is unlikely to be welcomed by businesses.

Administration

The new single tax is to be self-assessed, like SDLT and LBTT. For the many transactions that are processed through CREST – the UK’s central securities depositary – tax will continue to be collected via that system. Other transactions will need to be notified to HMRC and tax paid via an online portal. A unique reference number will then be issued to the taxpayer automatically, and the company registrar will be permitted to register the transfer of the shares. Reliefs will also be self-assessed by the taxpayer via the online system.

This represents a significant departure from, and an improvement on, the current system. At present, taxpayers calculate the stamp duty owed, pay it to HMRC’s bank account, and submit, via email, a letter explaining their assessment and requesting confirmation that HMRC has received the tax payable. Only once HMRC has provided confirmation via email may the registrar register the new ownership of the shares. This often means a corresponding delay between completion of the sale and the buyer obtaining legal title to the purchased shares while taxpayers await HMRC’s response. For time-critical transactions, this can force the parties to complicate their transactions – for example, by transferring legal and beneficial ownership separately – as a workaround. Accordingly, the new online platform should, in theory, simplify this process.

Unlike most other self-assessment taxes, there would be no statutory pre-clearance system, but taxpayers would be able to access a non-statutory clearance system for an informal opinion if there is uncertainty.

The new single tax is to have a single charging point, to be either the date of the sale agreement or, for a conditional agreement, the date on which the conditions are satisfied (subject to a two year time limit from the date of the agreement). Any tax would need to be paid within 14 days of the charging point. While this is not a significant departure for SDRT – an SDRT charge has always arisen on the date of the sale agreement, and transactions settled in CREST currently have a 14 day deadline – it will make a noticeable difference for transfers that would have been subject to stamp duty, as stamp duty charges currently arise on the execution of the instrument of transfer and taxpayers are given 30 days from the charging point to pay the tax.

Given that the new single tax should provide a more efficient way to pay stamp duty, many businesses and advisers will welcome the coming changes. However, affected parties may have concerns about the details of the proposals, and we can expect that these have been expressed to the Government in responses to the consultation. It remains to be seen – if and when these changes arise – whether those points of concern will be addressed.