United Kingdom: New Stamp Duty and Stamp Duty Reserve Tax (SDRT) rule for shares transferred to a connected company

02.11.2018

As announced in the Chancellor’s Budget on 29 October 2018 that legislation is introduced in the Finance Bill 2018-19 to provide for a new Stamp Duty and Stamp Duty Reserve Tax (SDRT) market value rule where listed securities are transferred to a company or its nominee (whether or not for consideration), and the person transferring the securities is connected with the company or is the nominee of a person connected with the company.

Effective

immediately

this change will apply, for the purposes of a SDRT charge at the rate of 0.5%, to an agreement to transfer ”chargeable securities” as defined in section 99 of Finance Act 1986/ which was entered into on or after 29 October 2018, and for a SDRT charge at the rate of 1.5%, where the transfer is on or after 29 October 2018. A similar change is made to Stamp Duty and applies to instruments executed on and after 29 October 2018.

Impact on customers

Clearstream Banking1 customers should be aware of this change, which became effective on 29 October 2018.

Summary of the changes

0.5% SDRT regime

In a case where “Listed securities” are agreed to be transferred to a connected company (or its nominee) for consideration in money or money’s worth, a charge to SDRT at the rate of 0.5% arises and is to be calculated by the amount or value of the consideration or, if higher, the value of the listed securities, at the date of the agreement. Where no consideration is paid, the agreement to transfer listed securities is to be treated as an amount of consideration in money that is equal to the value of the listed securities at the date of the agreement and SDRT is to be calculated by reference to the value of those listed securities

1.5% SDRT regime

Where “Listed securities” are transferred for consideration in money or money’s worth from a person (or its nominee) to a connected company and that company’s nominee is a depositary receipt issuer (or its nominee) or clearance service (or its nominee), if the amount or value of the consideration is less than the value of those securities at the time they are transferred, the transfer, for the purposes of a higher 1.5% SDRT charge, is to be calculated by reference to the value of the listed securities at the time of transfer

Market value calculation

For the purposes of a 0.5% or 1.5% SDRT charge, the value of listed securities on the date of the agreement or transfer is the price which they might reasonably be expected to fetch on a sale in the open market. The method for obtaining the market value of securities quoted on the London Stock Exchange is outlined in section 272(3) of Taxation of Chargeable Gains Act 1992 and that legislation applies for SDRT purposes. That is, SDRT on an agreement to transfer or transfer is to be calculated by taking the preceding day’s closing prices of the security and applying a mid-point, that is, one half of the difference between the lower and higher share prices added to the lower price

Listed securities

This change only applies to UK listed securities which are chargeable securities for the purposes of UK Stamp Taxes legislation. Listed securities are chargeable securities which are regularly traded on a regulated market, a multilateral trading facility or a recognised foreign exchange

Connected company and connected persons

For the purposes of SDRT (and Stamp Duty) section 1122 of Corporation Tax Act 2010 specifies the circumstances where a person is connected with a company

CREST reporting

Where a transfer and delivery of listed securities to an acquiring connected company (or its nominee) is into a CREST standard member account, the ”accountable person” for SDRT must populate the CREST transaction Stampable Consideration field with the amount or value of the consideration or where this is lower, or no consideration is given, with the market value of the listed security. The transfer will attract SDRT at the rate of 0.5%. Where a person (or its nominee) transfers UK incorporated company listed shares to a depositary receipt issuer (or its nominee) or to a clearance service (or its nominee) and the acquirer acts as nominee for a company connected with the deliverer of the shares, market practice is for the depositing member (that is, the person delivering the shares) to account for SDRT at the rate of 1.5% on the delivery and transfer to the depositary bank or clearance service (or their nominees). In this situation the depositing member must populate the CREST transaction Stampable Consideration field with the amount or value of the consideration or where this is lower, or no consideration is given, with the market value of the listed security.

Further information

We continue to monitor the market and will inform customers as soon as new information is available.

Enquiries regarding this note should be sent by email direct to HMRC: mailbox.sdrt@hmrc.gsi.gov.uk

More specific information is available at http://www.hmrc.gov.uk/.

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1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500