A brave new world for stamp duty?
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News: 20 November 2023
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The UK government’s consultation on the proposed reform of stamp duty and stamp duty reserve tax, published as part of its Tax Administration and Maintenance Day on 27 April 2023, has been widely well-received. Hints and suggestions of reform have been unfolding for some time – the consultation has been introduced in response to a call for evidence published in 2020 and recommendations for reform made by the Office for Tax Simplification in 2017.
Certainly, this is an area which is in need of significant modernisation and reform. The existing stamp duty and stamp duty reserve tax regimes are constituted by a patchwork of archaic and fragmented legislation which includes principal primary legislation introduced in 1891. Stamp duty was originally crafted exclusively as a tax on documents and is clearly entirely unsuited to the current marketplace. Even a quasi-satisfactory application to a progressively digital economy has required pounding square pegs into round holes with increasing force, as well as the frequent introduction of piecemeal legislation. Whilst an uneasy truce has developed as to its application to a number of key areas, there is a very real concern that its complexity and uncertainties inhibit inbound investment.
The government’s outline proposals would abolish both stamp duty and stamp duty reserve tax on shares and securities and replace them with a new single stamp tax on shares (STS).
It is anticipated that key features of the new STS will include:
- Scope: The overall intention is that the transactions within scope should remain the same; however, this will be achieved by way of a different design. The loan capital exemption will no longer exist, but will instead be effected by the scope of the tax, proposed to be “non-government equity in UK incorporated companies, including stock and bonds with equity-like features”. The transfer of partnership interests will be taken out of scope, but new provisions will be introduced to counter potential avoidance.
- Reliefs: Subject to the comments above, broadly similar reliefs will apply. These will include group relief, reconstruction and acquisition reliefs, the growth market exemption, intermediary relief, stock lending and repurchase relief and the current rules for share buybacks.
- Mechanics of assessment: Some of the most archaic features of stamp duty relate to the administration and collection of the tax. Currently, there is no positive obligation on any party to pay stamp duty. Rather, its enforcement is indirectly effected by the limitations imposed on unstamped documents. It is a design that sits very poorly within the UK’s largely self-assessment tax environment.
- By contrast, it is anticipated that the new STS will be collected by self-assessment through CREST, where it is in play, and otherwise through a new online portal (although we note that there will still be an express prohibition on company registrars registering untaxed transfers). No formal pre-clearance procedure is proposed, although taxpayers will be able to access the informal non-statutory clearance system in cases of genuine uncertainty. The consultation emphasises the importance of speed and efficiency – it is anticipated that registrars will be able to reflect changes in ownership immediately on receipt of the relevant tax registration details – a very welcome development.
- Geographical scope: Stamp duty and SDRT have different geographical scopes, which is counterintuitive and often confusing. The government proposes that the STS will have a single scope, as for SDRT (applicable to UK securities, wherever traded).
In fact, circumstances have already dictated some element of reform. In particular, the constraints of COVID meant that many of the physical processes of stamping were curtailed. Almost all documents are now submitted for stamping electronically and HMRC’s stamping presses were permanently decommissioned in 2021. Some of these developments have been useful, but others have also resulted in additional questions and uncertainties. It is hoped that more fundamental reforms will be more useful.
The government’s consultation gives no indication as to timing, other than to request that comments should be received by 22 June 2023. However, if the (lack of) speed with which the government has published the consultation is anything to go by, we should probably not hold our breath.
Nonetheless, despite the slow process to date, this is a very significant development, particularly given the number of transactions it will affect. Many advisers and taxpayers are following these developments closely, and with some relief. Assuming the process produces well-drafted legislation and clear guidance, this will be an important win for UK plc.