Consultation: Stamp Taxes on Shares modernisation

Question 1

Summary

Accepted Answer

Subject of this consultation

This consultation seeks views on proposals to modernise the Stamp Taxes on Shares framework, which encompasses both Stamp Duty and Stamp Duty Reserve Tax.

Scope of this consultation

HM Revenue and Customs (HMRC) is consulting on:

whether to have a single tax on securities rather than the current framework of both Stamp Duty and Stamp Duty Reserve Tax
proposals for the assessment and administration of any new single tax on securities
proposals for key elements of any new single tax on securities including liability, tax base, geographical scope, compliance regime and exemptions and reliefs

The scope of this consultation does not include the 1.5% charge. If modernisation is taken forward then the 1.5% charge will be dealt with separately.

Who should read this

Taxpayers, investors, businesses, tax advisors, practitioners and their representative bodies, tax lawyers and their representative bodies, stock brokers, stock traders, stock markets and anyone that is involved with or has an interest in the buying and selling of securities.

Duration

The consultation will run for 8 weeks starting on 27 April 2023 and ending on 22 June 2023.

Lead officials

The lead officials are A Lockyer and G Lowton of HMRC.

How to respond or enquire about this consultation

Any responses to or queries about this consultation should be sent by email to sts.consultation@hmrc.gov.uk or by post to:

Stamp Taxes on Shares Team

HM Revenue and Customs

Room 3/63

100 Parliament Street

London

SW1A 2BQ

Additional ways to be involved

HMRC also welcomes discussions with interested parties. If you would like to meet with policy officials, please contact HMRC using the details above.

After the consultation

After the consultation a summary of responses will be published.

Getting to this stage

This consultation follows on from a Call for Evidence issued in 2020, to explore potential guiding design principles and options for the modernisation of Stamp Taxes on Shares.

Previous engagement

The Office for Tax Simplification issued a report in 2017, in which it recommended the modernisation and digitalisation of Stamp Duty.

HMRC consulted on the consideration rules for Stamp Taxes on Shares in 2018. In 2020 HMRC published a Call for Evidence on the guiding design principles and potential options for modernising the Stamp Taxes on Shares Framework. In November 2021 a joint HMRC and industry Working Group was established to inform the proposals outlined in this consultation.

Question 2

1.  Introduction

Accepted Answer

Background to Stamp Duty and Stamp Duty Reserve Tax (SDRT)

Stamp Duty is a charge on paper instruments that transfer the beneficial interest in ‘stock’, ‘marketable securities’ or interests in partnerships where the partnership assets include stock or marketable securities. It is also charged on instruments that transfer land if the transfer took place prior to 1 December 2003, or transfers at any point further to an agreement entered into on or before 10 July 2003. Stamp Duty is mainly charged on a specific form known as a stock transfer form (STF), but is also charged on any other instrument that transfers the beneficial interest in ‘stock’ or ‘marketable securities’.

SDRT was introduced on agreements to transfer uncertificated (paperless) shares and other securities in 1986 and, with the growth of paperless transactions, SDRT rather than Stamp Duty now applies to most transfers of shares and securities. It is charged on agreements to transfer ‘chargeable securities’. Most securities are settled through the CREST settlement system and are known as ‘dematerialised’ as they are held in electronic rather than ‘materialised’ paper form.

See Annex A for definitions of ‘stock’ and ‘marketable securities’ and ‘chargeable securities’, and for examples of instruments other than STFs.

Stamp Duty is normally charged at 0.5% of the amount or value of the consideration and is rounded up to the nearest £5. SDRT is also normally charged at 0.5% but is rounded up to the nearest 1p. A higher 1.5% Stamp Duty or SDRT rate can apply in certain circumstances where shares or other securities are transferred overseas.

SDRT is not payable where either a document has been stamped for Stamp Duty purposes or is exempt from Stamp Duty.

Stamp Duty doesn’t normally apply where the consideration for shares is £1,000 or less. An exemption is claimed by self-certifying. This exemption prevents the administrative burden of having to notify low-value transactions.

The case for reform

HMRC is focused on becoming a trusted, modern tax and customs department – one that collects the tax due at minimal cost to customers and the Exchequer, in a way that makes it easy for customers to get tax right and operates in a way that is recognised as fair.

The government is aware that Stamp Duty, as a paper-based regime, is often regarded as an anachronistic feature of an otherwise well performing UK tax system. It has been put to the government that this can cause uncertainty for investors and impede the policy objective of raising revenue while minimising burdens on businesses and reduce government flexibility in developing policy. Moves towards digitalisation in other areas have indicated that there is scope to update aspects of the regime based on the stamping of paper instruments; and the Office of Tax Simplification (OTS) in their 2017 report ‘Stamp duty on paper documents: a way forward to reform, digitise and simplify’ recommended that the process be digitised and modernised.

These issues were further highlighted by the need to temporarily halt manual processes due to the restrictions put in place from March 2020 in response to COVID-19. HMRC subsequently removed the need for the physical stamping of documents and was able to restart processing Stamp Duty through allowing information to be sent electronically. While welcomed by industry, this did not remove the need for manual processing of the documents that were received and did not significantly speed up the processing of Stamp Duty. As such, the changes made due to COVID-19 are viewed by industry and HMRC as a stepping stone on the way to digitalisation rather than the desired level of modernisation and digitalisation envisaged in the OTS report. The government’s view is that now is the right time to explore options for fundamental redesign of the Stamp Taxes on Shares (STS) framework.

Unlike other taxes, Stamp Duty does not generally include any element of self-assessment. Instead, HMRC must assess whether reliefs are due, what the amount of any liability is and issue evidence of the tax being paid manually. The only exception is for certain exemptions where the customer can self-certify.

HMRC aims to deal with 80% of stock transfer forms within 15 working days of receiving them but recommend that customers allow 20 working days. In certain circumstances, very large value transactions can be subjected to an unwelcome delay. This is detrimental to the businesses affected and may affect the perceived attractiveness of the UK as a location to invest.

There is no legal obligation for a purchaser to submit an instrument to HMRC under Stamp Duty, as there is no liable or accountable person in the legislation. However, except for cases where an STF can be self-certified, company registrars cannot register the share transfer without evidence that Stamp Duty has been paid, nor can the instrument be used in court to verify title without it having been submitted. Shareholders may find this confusing.

Stamp Duty can in theory apply to any instrument of transfer executed in the UK irrespective of the location of the company and its share register. In practice, HMRC does not collect Stamp Duty on transfers of shares in non-UK companies. However, this lack of legislative clarity remains a barrier for some risk-averse investors.

Stakeholders have also reported other areas of uncertainty which can act as a barrier to investment, for example:

the legislation is dated and spread across a number of Acts, with common terms used in current-day business transactions not catered for
some Stamp Duty definitions are not always consistent with equivalent provisions for SDRT or other taxes and certain common business terms or practices are not covered
some reliefs exist only in Stamp Duty and not SDRT (and vice versa)

Stamp Duty and SDRT are interdependent, with SDRT relying on elements of the Stamp Duty regime for its operation. Modernisation of the Stamp Duty framework will therefore also impact on SDRT and raises questions about the separate existence of the two taxes.

The project so far

Following the 2017 OTS report, the government conducted an initial consultation on consideration rules for STS which concluded that changing a single aspect of the regime would be ineffective without considering the STS Framework as a whole. It was within this context that HMRC then subsequently issued a Call for Evidence in 2020, to explore potential guiding design principles and options for the modernisation of STS.

In its response to the Call for Evidence, the government recognised the importance of 3 guiding principles, which would inform further work in this area. These were:

simplicity
ease of use
clarity and certainty

In November 2021, HMRC established an industry Working Group (the membership of which is set out at Annex B), with which further extensive consideration has been given to the shape of possible modernisation reforms. This consultation document builds on those discussions, by seeking formal views from all interested parties on the resulting proposals. This consultation document focuses on overarching policy. Should reform be taken forward, there would likely be a further policy consultation to deal with the 1.5% charge, as well as a technical consultation on any draft legislation.

The STS modernisation project is looking at ways to helpfully update and consolidate the legislative framework to ensure that the provisions are accessible. Meanwhile, the government is mindful of the need to avoid unnecessary disruption; as such, familiar concepts from the existing regimes will be used where appropriate.

This consultation presents an opportunity for stakeholders to contribute to the government’s thinking on the potential areas for reform, ahead of decision-making on whether and how to proceed with modernisation.

Question 3

2.  Policy directions/proposals

Accepted Answer

Single tax and its administration (self-assessment, online portal, registrar obligations)

As outlined above, Stamp Duty and SDRT both tax transactions that transfer securities between parties in exchange for payment. SDRT now processes the majority of transactions and collects the majority of the resultant tax. However, there can be a need for taxpayers to switch between the taxes in order to access the right treatment for their transaction, for instance to access certain reliefs that are only available in one of the taxes and not the other. This can require shares to be materialised, taking extra time and incurring extra cost for no other reason than to access the correct tax treatment.

The government proposes having a mandatory, single tax on securities instead of separate taxes for electronic transfers (SDRT) and paper instruments (Stamp Duty). This approach will reduce complexity and was widely supported in the Call for Evidence responses and by the Working Group. The government understands that there are differences between the way that listed and unlisted shares are traded and that unlisted shares can have complexities around value that do not exist for listed shares. As such, but only where it is deemed necessary and appropriate, there may be instances where listed and unlisted shares are treated differently within the single tax framework. This should allow a single legislative framework for STS that is practical and in line with the guiding principle of ease of use.

Question 1: Do you agree that the government should pursue a single tax on securities instead of maintaining two separate taxes?

Currently Stamp Duty is assessed or adjudicated and manually processed by HMRC. Adjudication is the process where HMRC gives a formal opinion about whether Stamp Duty is payable on an instrument and, if payable, determines the amount due. SDRT is a self-assessed tax, for which the majority of transactions are reported and collected through electronic means without the need for manual processing by HMRC. Stamp Duty is somewhat of an anomaly within the taxes administered by HMRC because most are self-assessed and digitised to some degree if not completely.

The government proposes that any new, single tax should be self-assessed, bringing it in line with other modern taxes administered by HMRC as well as the department’s direction of travel to being a modern, digital tax authority that makes it easy to get tax right. We currently collect most SDRT through CREST (the UK Central Securities Depositary) where transactions take place electronically. One key piece of feedback that has been received so far, is the need to ensure that any disruption to the markets is minimal as a result of this project; in particular it was fed back that any disruption to CREST could have major impacts. CREST as a collection method is simple and works well for both customers and HMRC. The government proposes that transactions under any new single tax that would currently have their tax collected through CREST under SDRT, continue to have their tax collected through CREST.

The government proposes that transactions not undertaken through CREST should be notified to and payment made through a new online portal to HMRC. It is the government’s intention that the online portal process will be less burdensome than the current manual process for Stamp Duty and the government expects it to make dealing with STS tax returns easier and quicker for both businesses and HMRC. As is currently the case with Stamp Duty, transactions notified via the new online portal will not be treated as ‘stamped’ unless any tax due is paid.

Question 2: Do you agree that any new single tax should be self-assessed with transactions that are not processed through CREST being reported and paid via a new HMRC online portal?

Moving to self-assessment removes the level of certainty that is currently achieved through the Stamp Duty HMRC assessment and adjudication processes. It was recognised by the Working Group that this is a natural consequence of moving to self-assessment, but they requested that the introduction of a statutory pre-clearance process be considered.

Currently in Stamp Duty, HMRC assessment and adjudication takes place after the transaction has happened, but where there is uncertainty before a transaction as to how it should be treated for tax purposes, taxpayers have the option of asking HMRC for their ‘informal opinion’. In SDRT there are no statutory pre-clearances, but taxpayers have the option of asking HMRC for a non-statutory clearance where they are uncertain about the tax treatment of a transaction they intend to pursue.

After due consideration, the government does not consider a statutory pre-clearance process to be necessary. The current system does not provide statutory pre-clearance and although adjudication does provide certainty, it takes place after the transaction. To introduce a statutory pre-clearance system would be inconsistent with the way that HMRC treats other self-assessed taxes. The lack of certainty can be mitigated through legislative clarity, good guidance and the ability to access a non-statutory clearance system to seek an informal opinion on the tax treatment of transactions where there is genuine uncertainty. All of this should give taxpayers better clarity on the tax treatment for their transactions. As such, the government does not intend to introduce a statutory pre-clearance system but will provide access to the non-statutory HMRC clearance service.

Question 3: Do you agree that having a non-statutory pre-clearance system is an appropriate approach? If not, why not?

As outlined in the introduction, there is no liable person or legal obligation for anyone to pay Stamp Duty, with payment of the tax being incentivised through placing legal obligations and consequences on company registrars and by not allowing instruments that are not ‘duly stamped’ to be used as evidence in Court (in criminal proceedings). For SDRT, having legal obligations and consequences on company registrars is not considered necessary as there are liable and accountable persons with a legal obligation to report and pay the tax. There is an electronic record of transactions that is reported to HMRC and a statutory right for HMRC to take compliance action where necessary.

Whether to keep legal obligations and consequences on company registrars is something that has been raised for consideration, with good arguments either way. If a new single tax includes liability being placed on a person to pay the tax and has compliance powers, then the need for a link to company registrars is arguably no longer necessary. However, the link to registrars has been a very effective way of incentivising the reporting and payment of tax on these transactions for a long time. The ability for HMRC to detect transactions is important for compliance purposes and there is a question as to what alternative measures HMRC might put in place to enable the detection of transactions that go unreported if the registrars link were to be severed, as well as how burdensome any alternative could be.

Under any new single tax, the government proposes keeping the link to registrars in order to maintain the current high levels of compliance. As well as having worked well for a very long time, the registrars link is a simple and cost-effective mechanism.

The main issue that has been raised regarding the registrars link is the time taken between the transaction taking place and the registrar being able to register legal ownership. This process can take weeks and is neither conducive to nor in line with modern business practices and transactions. The processing time for Stamp Duty creates the need for industry to use work arounds, which adds expense and complexity for business. Industry has requested that HMRC makes ‘same day stamping’ easily accessible to enable business transactions to be dealt with in one day, without the need for complex and costly work arounds. It is the government’s intention that the online portal will enable the processing of the tax to be much faster, with the ability to input the transaction, claim relief or pay the tax and for a Unique Transaction Reference Number (UTRN) to be issued immediately. The UTRN will only be generated once any tax due has been paid.

The government proposes that registrars will be able to register ownership upon immediate receipt of the UTRN and that should enable same day registration, vastly improving the system to meet modern business practice and transaction needs.

Question 4: Do you agree that the need for a UTRN to be presented to registrars is an appropriate assurance and detection measure to have in place?

Liable and accountable persons

Currently for Stamp Duty there is no liable or accountable person. In most Stamp Duty cases it is the purchaser who pays the tax as they cannot legally register their ownership of the shares without evidence of payment.

For SDRT the purchaser is the liable person. The accountable person can be the purchaser or another person depending on the facts of the transaction.

For a modern, self-assessed tax it is necessary to hold somebody liable and accountable for the tax. The government proposes that the purchaser would become the liable and accountable person for non-CREST transactions and that the SDRT liable and accountable persons rules would be kept in place for CREST transactions. This approach should achieve maximum simplicity by not introducing an accountable person unnecessarily for non-CREST transactions as the purchaser would be easily able to access the HMRC portal. For CREST transactions there is the need to take any action within CREST through another person (usually a stockbroker or bank), so there is a need to retain the accountable person premise for any new tax to ensure the smooth continuation of CREST activity and tax collection.

Question 5: Do you agree with the proposed approach in respect of the liable and accountable persons? If not, why not and what would you suggest instead?

Charging point and accountable date

Currently in Stamp Duty the chargeable point is execution of the document that completes the transaction. In SDRT it is at the point that an agreement to transfer is made. The government considers a single charging point as preferable to maintaining two separate ones for listed and unlisted shares as it will be simpler.

The government understands that may raise some issues for unlisted transactions, particularly where valuations are involved or there are complexities within the transaction. However, these will be mitigated through conditional agreements and the accountable date being at a later point to the charging point, giving time for the transaction to be resolved before notification of the transaction and payment of the tax is due. In addition, the government is proposing new rules for uncertain and unascertainable consideration that should also act as mitigating factors to enable a single charging point.

The government proposes having a single charging point at the relevant date in any new single tax. The relevant date is either the point of agreement, or where there are conditions on the agreement the relevant date is when those conditions are fulfilled, with an overall two-year time limit.

Question 6: Do you agree that a single charging point as outlined can work and is the correct approach in any new single tax? If you do not think it is the best approach, what would you propose and why?

Currently in Stamp Duty, payment is due within 30 days of the signing of the instrument. In SDRT the accountable date is 14 days for transactions settled through CREST and the 7th day of the following month for transactions settled outside of CREST. HMRC carried out some analysis on a sample of Stamp Duty transactions to determine the time between the relevant date and payment date, the majority of which were paid within a 14 day timeframe. In line with the guiding principle of simplicity, the government is proposing a single accountable date of 14 days from the charging point.

Question 7: Do you agree that a single accountable date of 14 days from the charging point would work and is the correct approach? If not, what would you do differently and why?

Geographical scope

Currently there are different geographical scopes for Stamp Duty and SDRT. The scope for Stamp Duty can be described as difficult to interpret and can lead to activity being undertaken outside of the UK or workarounds being used to ensure that non-UK securities don’t fall into scope by remit of where an activity is taking place. For SDRT the geographical scope is worldwide; SDRT applies to UK securities no matter where they are traded and no matter where the parties involved are based.

The SDRT geographical scope is simple in comparison with Stamp Duty, does not encourage behavioural change, is effective and is understood easily by those involved in any transfer. The government proposes that the SDRT geographical scope rules are applied to any new single tax on shares.

Question 8: Do you agree that the current SDRT geographical scope rules should apply to any new single tax on security transactions? If not, what would you suggest and why?

With regard to geographical scope, industry have highlighted the importance of how it is defined in relation to where electronic share registers are kept. There becomes a legal question around whether shares are in scope or not based on any definition and how that is framed. For example, if you have an electronic share register that a UK based company administers, does that mean the register is held in the UK even if the data server is based outside of the UK?

This was raised as a current issue under Stamp Duty’s geographical scope. However, this is also currently relevant for SDRT within the definition of chargeable securities. The government does not propose to define where an electronic share register is kept for any new single tax, but instead to use whether shares are in a UK incorporated company or not as the key factor for whether they are in scope.

Question 9: Do you agree it is not necessary to define where an electronic share register is kept under any new single tax on securities? If not, why not?

Tax base

Currently the scope for Stamp Duty and SDRT is securities including stocks and bonds. There are carve outs within the scope which exclude debt, except for particular types of debt that have equity like features, as well as specific exemptions for particular sectors. This is to ensure that only securities that, in substance, amount to equity are in scope of the tax. The way the scope is currently dealt with in both taxes through the inclusion of both equity and debt, followed by a large carve out with exceptions then being made to that carve out, is a complex way of defining the tax base.

The government proposes to explore a different approach, in which the scope of a new single tax would be non-government equity in UK incorporated companies, including stock and bonds with equity like features (equity like features will need to be defined along similar lines to the loan capital exemption). The aim of this would be to enable the removal of the loan capital exemption by including its parameters in the overall rules for the scope of the tax. This is in line with the guiding principle of simplicity and seeks to also provide better clarity to the scope of any new single tax.

However, if the government is unable to do this through the scope of the tax then we intend to keep the loan capital exemption as it is, but look at whether the language can be simplified or modernised within it to ensure it is as clear as possible.

Question 10: Do you agree that the proposed scope is appropriate, captures what you would expect it to capture and excludes what you would expect it to exclude?

Question 11: Is there anything that is currently captured by Stamp Duty and SDRT that would not be captured through this approach to scope?

Question 12: Do you agree that the government should explore a different approach to the loan capital exemption? Do you foresee any issues with such an approach?

There are a number of other areas that have been highlighted as worthy of the government’s further consideration in relation to the tax base:

Security interests

Currently the granting of a security interest generally falls outside of scope of STS, but in cases where a lender requires evidence that this is the correct tax treatment, the analysis that has to be undertaken by lawyers is cumbersome and difficult for taxpayers to understand. As such, the government has been asked by stakeholders to consider including a specific provision in any new single tax specifying that the granting of a security interest is not a chargeable interest for STS. The government proposes that any legislation for a new single tax specifies that the granting of a security interest is out of scope.

Question 13: Do you agree that the granting of security interests is currently out of scope?

Question 14: Do you think that the government should specify that the granting of security interests is out of scope in legislation and that it wouldn’t open up any route for avoidance?

Question 15: If we chose not to specify that the granting of security interests is out of scope, can you share how much time you would expect to spend establishing and showing the correct tax position for lenders and how often you would be likely to do this?

In specie contributions and redemptions

In specie contributions to and redemptions from collective investment schemes/funds are a complex area. The feedback that has been given on this area is that pro rata treatment for unit trusts is the main issue because of a cliff edge point where the existing exemption doesn’t apply. For unit trusts, a pro rata in specie basis is where an investor is able to contribute chargeable securities, stock or marketable securities to an existing unit trust (or an existing sub-fund) in quantities that exactly match the investments and quantities already held as investments by the unit trust fund, or is able to proportionately contribute a quantity of each item already held by the fund.

‘Pro rata’ and ‘in specie’ are Latin terms meaning, respectively, ‘in proportion to’ and ‘in the actual form’. Transferring property ‘pro rata in specie’ means to transfer the ownership of that property from one person/company/entity to another person/company/entity in its current form (for example, without the need to convert the property to cash), in proportion to the same kind of property already held by the recipient.

For example, if a unit trust fund holds 100 ABC shares and 200 DEF shares and an investor transferred a further 100 ABC and 200 DEF shares to the fund, the contribution is regarded as pro rata in specie, as it matches the investments already within the fund.

Similarly, if an investor transferred 50 ABC and 100 DEF shares to the fund, the contribution is regarded as pro rata in specie, as it proportionately matches the investments held by the fund.

In this situation, the investor is not relinquishing ownership of his property in return for a different proportionate percentage interest in each of the existing underlying investments (which includes his own contributing property) contained in the fund. There is therefore no transfer on sale, or an agreement to transfer, as the transaction represents, in effect, no change of beneficial ownership. Consequently, there are no SDRT (or Stamp Duty) implications.

Another issue highlighted is with pro rata distributions and whether the treatment of non-UK fund equivalents should match the treatment of UK funds. The government proposes bringing non-UK equivalent funds onto an equal statutory footing with UK funds. The government also proposes giving further consideration to the treatment of pro rata and whether further clarity can be given on its definition when drafting the legislation.

Question 16: Do you agree that non-UK fund equivalents should have an equal statutory footing to UK funds? What are the benefits and disadvantages of doing so in your view?

Question 17: Do you have any alternative suggestions for how the government might deal with in specie contributions and redemptions, bearing in mind the need to guard against significant losses to the Exchequer?

Mergers

Mergers are currently within the scope of Stamp Duty and SDRT and the rules around how they should be conducted is laid out in Company Act legislation. The STS treatment of mergers is laid out in the STS legislation, which is important to ensure that it is fully and clearly captured. From 4 March 2015, Companies Act Regulations were introduced to prevent the use of reductions in share capital in cancellation schemes of arrangement designed to implement company takeovers. Companies effecting a takeover or merger must use a transfer scheme of arrangement or a contractual offer. The government does not propose making any changes to this.

It has been suggested that the government should clarify that where securities move by operation of law they are out of scope. However, the government considers that this would be too wide a clarification as treatment in different countries and differences in the way mergers are structured can lead to different outcomes. As such, the government proposes keeping the current legislative policy on mergers but will seek to ensure that legislation on the subject reflects current market practice and case law. In particular, the government considers the principles established in the case of Save & Prosper Securities Ltd v CIR (Sp.C 251) are only relevant for mergers of Collective Investment Schemes. Those principles are:

that it is necessary to seek the intention of the parties in the whole of the language used in the document
no clause should be rejected unless it is clearly impossible to harmonise the whole of the language used
an intention of the parties to enter into legal obligations can be negatived expressly
the consequences in law of a document can only be determined by consideration of its effect
if a document satisfies all the requirements of an agreement then it will produce an agreement unless it specifically and definitively negatives an intention to create an agreement

Question 18: Do you agree this is the correct approach to mergers? If not, why not and what would you propose? If you are proposing an alternative what are the benefits and disadvantages of that option?

Call options and warrants

The grant of call options and warrants can fall into scope under Stamp Duty, but not SDRT. The secondary transfer of existing call options and warrants to a third party can be chargeable to both Stamp Duty and SDRT. The government proposes that any new single tax would adopt the current SDRT treatment of warrants and call options, the result of this is that the granting of them would fall outside of scope, but their transfer would be chargeable.

Question 19: Do you agree that this is the correct way to deal with call options and warrants?

Question 20: Do you think that this treatment of options and warrants may open up any routes to avoidance?

Question 21: If you do not think the government’s proposal is the correct way to deal with options and warrants, what would you do differently and why?

Pre 2003 interests in land

Prior to the introduction of Stamp Duty Land Tax (SDLT) in 2003, the transfer of interests in land were in the scope of Stamp Duty. SDLT now captures transfers in interests in land, but wasn’t applied retrospectively and, as such, any such transfers that occurred prior to the introduction of SDLT were captured by Stamp Duty.

The transitional provisions for the introduction of SDLT also set out that where contracts were exchanged for a transfer in an interest in land on or before 10 July 2003, but the transaction completed on or after 1 December 2003, subject to certain conditions (such as the contract not being varied) the transaction would not be subject to SDLT and so instead remain in the scope of Stamp Duty. There are therefore still land transactions that remain in the scope of Stamp Duty, either because they were completed before 1 December 2003, or because contracts were exchanged on or before 10 July 2003 but the transaction had not yet completed.

The government proposes retaining the effect of those transitional provisions. This would mean that such transactions would retain their existing treatment after the introduction of any new tax.

Question 22: Is there any reason why you think the government should not retain the existing treatment of land transactions that are currently in the scope of Stamp Duty rather than SDLT?

Consideration

Chargeable consideration under Stamp Duty is currently defined as including cash, debt or the value of any other stock or marketable securities. This can lead to anomalous exchanges and the ability for people to avoid the scope of Stamp Duty by using alternative means of paying for their securities where sellers are agreeable to such arrangements.

Under SDRT, consideration is currently defined as money or money’s worth. This definition of consideration was chosen to avoid replicating the position in Stamp Duty where people can take themselves out of scope through their payment method. The government proposes that we use the current SDRT consideration of money or money’s worth for any new single tax, subject to the exceptions set out under the headings below.

The government recognises that using the current SDRT definition of consideration would bring into scope transactions that are currently out of scope through electing to follow the Stamp Duty regime rather than SDRT. In some cases this has the potential to adversely affect transactions, processes or sectors that the government would not want to disrupt by adding an additional charge to their security transactions. In particular, the government is mindful of potential impacts and unintended consequences for pensions, funds and insurance industries. The government is aware of the following instances that are currently out of scope and for which a carve out or relief/exemption may need to be considered:

Transfers of partnership interests

Transfers of partnership interests are currently in scope for Stamp Duty, where the partnership holds stock or marketable securities. The charge is capped at the amount which would be charged on an actual transfer of the stock or marketable securities held within the partnership.

Contributions of securities into a new partnership are not currently chargeable. Where a new partner is added to an existing partnership which holds stock or marketable securities as part of its assets, whether a charge to Stamp Duty arises will depend on whether the new partner simply contributes to the partnership assets (which is not chargeable), or pays the existing partners in return for the transfer of an interest in the partnership (which is chargeable).

Currently, where the transfer of a partnership interest is in scope, there is often no instrument presented to HMRC (and so no Stamp Duty is paid), unless the transfer instrument is needed as evidence in court proceedings.

Previously, their inclusion in scope has been used to guard against the use of partnership interests as a means of avoidance. The government proposes taking partnership interests out of scope under any new single tax either through the way scope is legislated or through a relief or exemption. The government also intends to introduce anti-avoidance legislation to prevent partnership interests being used as a method of transferring share ownership in order to avoid STS.

Question 23: Do you agree that taking partnership interests out of scope and dealing with any potential avoidance issues through anti avoidance legislation is the correct approach? If not, what approach do you think we should take, why, and how would that approach deal with any potential abuse?

Obligations to pay pension benefits

Obligations to pay pension benefits currently fall out of scope through the Stamp Duty definition of consideration but would be brought into scope if the SDRT definition of consideration of ‘money or money’s worth’ were to be adopted for any new single tax. The government proposes to introduce a relief or exemption in order to ensure obligations to pay pension benefits does not become liable to an STS charge and cause disruption to the pension market.

Question 24: Do you agree with this view on the payment of pension benefits and agree with the proposed approach?

Question 25: Do you think there is any potential for avoidance with the government’s proposed approach to the payment of pension benefits?

Question 26: If you don’t agree with the government’s view on the payment of pension benefits and the proposed approach please explain why?

Life Insurance Policies

Currently, where the consideration for a transfer on sale of stocks or marketable securities is in the form of an issuance of a life policy (and no other consideration), the issue of a life insurance policy is not regarded as chargeable consideration for Stamp Duty purposes. Where an instrument or other document is executed to effect such a transfer, the instrument is exempt from Stamp Duty and this will cancel any liability to SDRT on the agreement to transfer. However, should any new single tax adopt the money or money’s worth definition of consideration that is currently in place for SDRT, a life insurance policy would be in scope. In order to ensure that this doesn’t cause disruption to insurance markets, the government proposes that life insurance policies should receive a relief or exemption to avoid becoming liable to an STS charge.

Question 27: Do you agree that life insurance policies would fall into scope and do you agree with the proposed approach? If not, why not?

Question 28: Do you support the proposal to use money or money’s worth for consideration under any single STS tax?

Question 29: Are there any further instances that are not captured where transactions would be brought into scope where adding a charge would be disruptive that you think we should consider? When telling us of further instances, please illustrate the impact of adding a charge and the extent of the disruption.

Question 30: Are there any further instances where transactions would be brought into scope by using the SDRT definition of consideration that wouldn’t naturally fit into the system as outlined that government needs to consider?

Question 31: Is there anything proposed in this section on consideration that could open up a route for avoidance?

Contingent, uncertain and unascertainable consideration

Currently Stamp Duty and SDRT deal with unascertainable and uncertain consideration differently, with feedback being that neither treatment is ideal.

For Stamp Duty there are broadly 5 types of contingent payment:

a payment which is subject to a stated upper limit – a maximum (charged on that maximum)
a payment which is subject to a stated lower limit – a minimum (charged on that minimum)
a payment that will fall between two stated limits – a minimum and a maximum (charged on that maximum)
a payment which is estimated but can vary up or down (charged on that sum under the assumption that no variation will occur)
a payment which is wholly unquantifiable (not charged)

Stamp Duty is charged according to the contingency principle and is not varied depending on whether or not the contingency does or does not occur. This is because a document attracts duty by reference to the facts and circumstances at the date of execution, and the subsequent effect of a future contingency can have no effect on that calculation. For uncertain consideration that is ascertainable but has not yet been ascertained, Stamp Duty operates a ‘wait and see’ process where payment of a reasonable estimate is made at the point of the initial transaction. HMRC wait for confirmation of the final consideration and either confirm what further payment is due or refund any overpayment.

For SDRT, uncertain and unascertainable consideration is dealt with by a reasonable estimate being paid at the point of agreement.

External stakeholders have suggested that the way that SDLT deals with uncertain and unascertainable consideration is more practicable and more suited to a modern tax because it allows more flexibility to deal with the various types of transactions that come into play in STS.

The government proposes to largely follow existing SDLT rules for uncertain and unascertainable consideration, including the ability to apply for a deferral, but with the addition of a time limit of 2 years for deferment. The rules as they are envisaged are in the tables below:

Contingent, uncertain or unascertained consideration – definitions

Consideration type	Definition (per SDLT in section 51 FA2003).
Contingent	It is to be paid or provided only if some uncertain future event occurs, or it is to cease to be paid or provided if some uncertain future event occurs.
Uncertain	The amount or value of the consideration depends on uncertain future events.

Contingent, uncertain or unascertained consideration – standard approach

Event	Treatment
Initial return/notification	Contingent element – consideration determined on the assumption that the outcome of the contingency will lead to the consideration being payable, or not ceasing to be payable (per s.51(1) FA03 for SDLT). Uncertain or unascertained element – consideration amount or value calculated based on a reasonable estimate (per s.51(2) FA03 for SDLT).
Contingency occurs (or becomes clear it will not occur) or value is ascertained – additional charge arises	If no return was required to be made initially, but now is, then this must be made within 14 days (per s.80 (2) FA03 for SDLT). If tax, or additional tax, is now due, an additional return must be made within 30 days, and the tax due paid to HMRC (per s.80 (2A)/(2B)/(2C) FA03 for SDLT).
Contingency occurs (or becomes clear it will not occur) or value is ascertained – refund due	If the return can still be amended, then the adjustment to the tax due is made on the return (per s.80 (4)(a) FA03 for SDLT). If the return cannot be amended, then a separate reclaim may be submitted to HMRC (per s.80 (4)(b) FA03 for SDLT).
Contingency occurs (or becomes clear it will not occur) or value is ascertained – no change to tax due	No action required

Contingent, uncertain or unascertained consideration – deferment approach (per s.90 FA03 and SI 2003/2837 for SDLT)

Event	Treatment
Initial return/notification	Where the uncertain future event will take place less than 6 months away, deferment is not available. The standard approach for contingent, uncertain or unascertained consideration must be followed instead. - Where the consideration is uncertain because the amount is ascertainable but not yet ascertained, deferment is not available. Where the uncertain future event/events will take place more than 6 months after the transaction, then: Payment must be made in respect of any ascertained or ascertainable consideration. An application may be made to HMRC to defer payment of tax relating to the contingent, uncertain or unascertained consideration. Any application must be made within 30 days. NEW: HMRC will only agree to deferment for a maximum of 2 years from the initial transaction date. Where the uncertain events are expected to take place in over 2 years’ time, any application is on the condition that, at that 2-year point, tax must be calculated and paid on the assumption that the outcome of the contingency will lead to the consideration being payable, and where there is an uncertain element, on a reasonable estimate of it. While HMRC is considering the application, the sum of tax concerned is suspended until a decision is made.
HMRC refuses the deferment application	The tax concerned becomes payable within 30 days of HMRC’s notice refusing the application. This notice may be appealed.
HMRC accepts the deferment application	HMRC issues notice to approve the deferment application. The notice will include details of how tax will be calculated in respect of the deferred tax when the relevant events occur to allow this to be done. NEW: HMRC will only agree to deferment for a maximum of 2 years from the initial transaction date.
Contingent consideration becomes known – additional charge arises	Notification and payment of tax must be made to HMRC: Within 30 days if a return had already been made at the time of the transaction. Within 14 days if no return had been made at the time of the transaction.
Contingent consideration becomes known – refund due	A claim may be submitted to HMRC for the overpaid tax
NEW: 2-year time limit reached – contingency has not occurred, or value is not yet ascertained	HMRC will only agree to deferment for a maximum of 2 years from the initial transaction date. At the 2-year limit, tax must be calculated and paid on the assumption that the outcome of the contingency will lead to the consideration being payable, and where there is an uncertain element, on a reasonable estimate of it. Details of this would be set out in the notice issued by HMRC approving the deferment application. If subsequently the consideration is finalised and this would result in a lower amount of tax being due, a claim may be submitted to HMRC for the overpaid tax.

Question 32: Do you agree with the government’s proposals for dealing with uncertain and unascertainable consideration?

Question 33: If not, how do you think we should deal with uncertain and unascertainable consideration for any single tax on securities?

Exemptions/reliefs

There are many exemptions and reliefs within the Stamp Duty and SDRT regimes, though they don’t all apply to both. Overall, the government proposes removing those that are considered to be or that will become redundant by moving to a single tax and those that are unused. The government is also seeking to modernise the language used in legislating all retained reliefs and exemptions to ensure that they are as clear as possible. Those included in this part of the document are those that we have specifically considered as part of the process so far and that we propose to change or discard. The government intends to include any reliefs and exemptions that are not listed below in the new single tax and apply them using the same rules that are currently used.

Assuming that stakeholders continue to support moving to a new single tax through this consultation, then any legislation, reliefs or exemptions relating to dealing with the overlap between Stamp Duty and SDRT will be redundant and not feature in any new legislation.

The de minimis

Currently there is a £1,000 de minimis in Stamp Duty, which means that any transactions that have a consideration of less than £1,000 fall out of scope and are treated as exempt. The de minimis was originally put in place to minimise the admin burden for small transactions.

For SDRT there is no current de minimis, though in practice any consideration under £1 leads to a less than 1p tax liability and so doesn’t need to be paid. It was not considered that a de minimis to relieve administrative burdens was necessary for SDRT given that it is processed electronically.

Currently, to receive the exemption under the de minimis in Stamp Duty a declaration on the transfer document needs to be completed and sent to company registrars to update legal ownership on the register. Given that the intention is to digitise transactions that are not dealt with through CREST and to notify online, the government does not believe that the de minimis needs to be retained. Completing an online form would be no more burdensome than completing the current paper form required to declare that the transaction qualifies for the de minimis exemption.

As such the government is proposing the removal of the £1,000 de minimis that currently exists for Stamp Duty.

Question 34: Do you agree with the reasoning behind the proposal to remove the de minimis? If not, what justification can you give for retaining it?

Intermediary relief

At present, intermediary relief is applied to UK intermediaries and a person who is authorised under the law of an EEA state or Gibraltar, or has permission under the Financial Services and Markets Act 2000 to carry on any of the investment services or activities in paragraph 2 or 3 of Part 3 of Schedule 2 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to execute orders on behalf of clients or deal on own account, where they have successfully applied for intermediary status by making an application direct to HMRC.

External stakeholders have asked about the territorial application of intermediary relief and whether it should be extended more widely given that some brokers are accountable persons for SDRT purposes but cannot directly apply intermediary relief because they are not based in the UK, EEA or Gibraltar. Currently this can be circumvented through involving a UK based intermediary. Given that UK-based intermediaries can be used by overseas companies, the government proposes not to change the territorial application of intermediary relief.

It has also been noted by the government that there is an extra task for intermediaries of having to switch between intermediary accounts and non-intermediary accounts where they have both. The government proposes to explore whether there is a better way to deal with applying or not applying intermediary relief where an intermediary undertakes transactions that both attract and do not attract intermediary relief. This is in line with HMRC’s aim of making paying the right tax easy.

Question 35: Is there anything that you do not think has been sufficiently considered in relation to the geographical application of intermediary relief?

Question 36: Do you think that the government should explore whether there is an easier way for intermediaries to apply or not apply intermediary relief to particular transactions?

Stock Lending and repurchase relief

Stock Lending – a market maker (principal broker dealer) or other recognised intermediary may have insufficient stocks and shares to fulfil an order to sell securities to another broker or investor. This may necessitate the borrowing of stocks and shares from other market institutions. In the absence of any relief, the lending of stock or chargeable securities to a borrower followed by the return of the same stock to the lender incurs a 0.5% stamp duty or Stamp Duty Reserve Tax charge on each leg; a cumulative charge of 1% on the two transactions.

Repurchases – a repurchase is much like a stock loan except that the transfer of securities in each direction is by way of sale; the arrangement is for the sale and repurchase of stock. The term repurchase embraces ‘delivery by value’ transactions under which a person lends money against a basket of securities short term, typically overnight. The securities are used as collateral for the cash loan. Similar to stock loan arrangements, in the absence of any relief the business of purchasing securities followed by the return of the securities to the borrower incurs a 0.5% charge on each leg; in effect a cumulative charge of 1% on the two transactions.

Relief from the 0.5% Stamp Duty or SDRT charge is afforded to any person who enters into a ‘stock lending arrangement’ including repurchases. The purpose of this relief is to provide liquidity in the financial markets. The geographical application of this relief was also raised as one that it would be useful to widen beyond the current scope of UK, EEA and Gibraltar to make it easier for brokers based outside of those areas to be able to lend and repurchase UK stock. However, the government does not consider that a strong case has been made for doing this. As such, the government does not propose to widen the geographical application of this relief.

Question 37: Is there any reason why you think the government should change the geographical application of Stock lending and repurchase relief that it may not be aware of?

Debentures

There is no specific exemption for debentures from STS. Where debentures are not marketable securities they fall out of scope of STS. Where they are marketable securities they fall under the loan capital exemption provisions. However, there is enough uncertainty around the treatment of debentures that HMRC are regularly asked whether they are in scope or not. The government has considered whether there should be a specific exemption or relief to make it clear these are not in scope. If the scope of any new single tax is focused on equity and debt with equity like features then this matter should be dealt with through that definition. As such the government does not propose to include a specific relief or exemption for debentures.

Question 38: Do you agree that this is the correct approach to debentures? If not, why not and what would you do differently?

Share buy backs in the context of overseas listings is an area that has been highlighted during this process. Share buy backs are defined as the purchase of shares by a company from its shareholders.

The government does not consider that there is a strong argument or strong benefits for changing the current rules in this area. The current approach allows the exchequer to receive a final charge on these securities which, once taken out of the market, will no longer be bought and sold meaning that the Exchequer will no longer be collecting any STS on their transfer. As such, the government proposes that any new single tax retains the current rules for share buybacks.

Question 39: Do you agree that this is the correct approach to share buybacks? If not, why not and what would you do differently?

Question 40: If outlining an alternative approach to share buybacks, what are the benefits and disadvantages of that approach?

Group relief

Group relief is currently available in Stamp Duty but not in SDRT. It permits the transfer of beneficial interests in securities between companies within the same group without the transaction incurring an STS charge. A claim for group relief will not be allowed if the transfer was effected in pursuance of, or in connection with, an arrangement under which:

part or all of the consideration was to be provided or received, directly or indirectly, by an outsider
the transferor/lessor and transferee/lessee were to cease to be associated because the transferor/lessor, or another body corporate, is to cease to be the transferee’s/lessee’s parent
the beneficial interest transferred was previously transferred by a party other than an associated body corporate

For the relief to apply, the onus is on the customer to show that the instrument was not executed in connection with one of these three types of arrangement.

That it is only available in Stamp Duty creates an unnecessary complexity under the current two taxes with some transactions having to go through the process of materialising shares in order to benefit from the relief, unnecessarily generating extra work and expense. The government proposes that under any new single tax Group relief is retained as it is, with consideration as to whether the anti-avoidance rules can be clarified further to make them clearer for taxpayers.

Question 41: Do you agree that we should include group relief in any new single tax?

Reconstruction and acquisition reliefs

Sections 75 and 77 of the Finance Act 1986 provide Stamp Duty relief for company reconstructions and acquisitions in certain circumstances.

Sections 75 and 77:

provide relief from Stamp Duty on a transfer on sale
relate to transactions by companies
refer to a ‘target company’ and an ‘acquiring company’
state that the consideration for the acquiring company’s acquisition must include the issue of shares in the acquiring company
have no time limit for relief
make adjudication compulsory to access the relief

These reliefs are also only available in Stamp Duty in the current two tax STS framework, are not available to Open-Ended Investment Companies, are subject to certain conditions that are strictly enforced and relief under s77 may not be available in certain other circumstances, which are set out in HMRC guidance. The government proposes to retain these reliefs with their current rules under any new single tax. The government also intends to ensure that the legislation is clearer, as interpretation of the current legislation, which does not define some key concepts, has instead been developed through case law.

Question 42: Do you agree that the government should include reconstruction and acquisition reliefs in any new single tax?

Question 43: Is there anything you would like to highlight with regards to making the legislation for reconstruction and acquisition reliefs clearer?

Growth market exemption

In both Stamp Duty and SDRT there is a general exemption for instruments relating to stock or marketable securities admitted to trading on a recognised growth market but not listed on any recognised stock exchange. This is known as the growth market exemption.

Concerns around the growth market exemption have been highlighted. There are some concerns that it is not sufficiently targeted to help those small growing businesses that it was intended to, but instead, is providing an exemption on STS for established mid-sized companies. At the other end of the spectrum there have been concerns raised that the rules for its application are too restrictive and haven’t kept up with industry and marketplace developments, and that more markets/trading platforms should be able to qualify for it through a relaxing of the criteria.

The government has considered these matters and has concluded that the current exemption strikes the correct balance between helping growing businesses access market capital and having sufficient controls over qualifying to ensure that it achieves its aims and is not more widely applied. The government is proposing that the growth market exemption is retained under any new single tax and has no current plans to amend the rules of the relief.

Question 44: Do you agree that the growth market exemption should be retained under any new single tax? If not, why not?

Question 45: In light of the consideration of reliefs and exemptions and their continued functionality, are there any market developments that should be considered?

Penalties and compliance

Currently for Stamp Duty there are no compliance powers in place for HMRC. As outlined previously, compliance powers are not needed because indirect enforcement is in place for Stamp Duty, via the imposition of penalties on registrars if they register new legal ownership of shares without evidence that Stamp Duty has been paid.

For SDRT there is a full and enforceable compliance regime. The working group were in agreement that whatever the standard enquiry and enforcement powers are for self-assessed taxes should be applicable to any new single tax. After examining various self-assessed taxes, the government has concluded that the compliance regime that is best suited for a transaction tax on shares is the SDRT compliance regime. Therefore, the government proposes to introduce the following for a new single tax:

Determination assessment times

The government proposes for HMRC to recover either overpayment or underpayment of tax a time limit of:

4 years after the relevant accountable date/relevant repayment date in cases of no careless or deliberate behaviour
6 years after the relevant accountable/repayment date in cases where a person or a person acting on that person’s behalf has acted carelessly
20 years after the relevant accountable/repayment date where a person or a person acting on that person’s behalf has acted deliberately

There will be an appeals process for assessments through tribunal. These proposals are the same as the time limits for SDRT currently.

Penalty assessment times

The government proposes that for any new single tax HMRC would have the following time limits to assess penalties:

6 years after the date upon which the penalty was incurred
3 years after the final determination of the amount of tax upon which the penalty is based

There will be an appeals process for penalties through tribunal. These time limits are the same as those available for SDRT currently.

Discovery powers

The government proposes the inclusion of discovery powers. These powers allow HMRC, in certain circumstances, to make an assessment where it discovers information after the usual deadlines have passed. These powers are currently available to HMRC for most taxes.

Information and inspection powers

The government proposes the inclusion of information and inspection powers. These powers allow HMRC to require a person to provide us with information and or documents in order to reasonably check the tax position. The inspection powers allow HMRC to enter premises and inspect where it is reasonably required and for the purpose of checking a person’s tax position. These powers are currently available for SDRT.

Penalties for late notification of a transaction

The government proposes keeping these the same as they are for SDRT currently, but with some amendments:

When liable to penalty	Type of penalty	Amount of penalty
On the penalty date	Initial fixed penalty	Fixed £100. New: Option to cap these penalties in a first ‘incident’ for a first time offender at £10,000.
3 months after the penalty date	Daily penalties	£10 per day, up to a period of 90 days. HMRC decides whether this penalty is payable, it is not automatically applied.
6 months after the penalty date	6 months further penalty	Greater of 5% of the tax liability that would have been shown in the return, and £300. New: Option to apply 5% rate for a first time ‘incident’ by a first time offender where that would be less than £300 per transaction.
12 months after the penalty date	12 month further penalty	If information is deliberately withheld and concealed, greater of 100% of the liability that would have shown in the return, and £300. If information is deliberately withheld but this is not concealed, the greater of 70% of the liability that would have shown in the return or document, and £300. Otherwise, the greater of 5% of the liability that would have shown in the return or document, and £300. New: Unless information is deliberately withheld, then an option to apply 5% rate for a first time ‘incident’ by a first time offender where that would be less than £300 per transaction.

One of the issues that HMRC has had with current SDRT notification fixed penalties is that there are instances where a liability arises and the taxpayer doesn’t realise they are liable to a charge for some time. This may result in a large amount of fixed penalties for not making returns to HMRC that does not reflect the tax liability or the seriousness of the failure. In these circumstances HMRC may, on a case by case, basis reduce the penalties to an amount that meets the compliance intention of the penalty regime. There is not certainty that the penalties will be reduced in any particular case until HMRC have fully considered all relevant circumstances. Such reviews can take additional time and resource for both HMRC and taxpayers and there are concerns around the level of stress and worry that could place on the taxpayer.

As such the government proposes to include provisions that cap the initial notification penalties for a first time ‘incident’ at £10,000 for those with obligations for the first time and the 6 month and 12 month penalties to be charged at the 5% rate even where that is less than the £300 for first time obligations and ‘incidents’. An ‘incident’ would be the first reporting to HMRC by a liable or accountable person (as defined in SDRT legislation) of a single or multiple transactions that are being notified later than they were due. This will reduce time and effort spent by HMRC in dealing with these instances. It is also in line with the guiding principles of clarity and certainty and will reduce the potential stress for the taxpayer.

Penalties for non-payment

The government proposes that the initial penalty date will be the 31st day after the accountable date. The initial penalty will be 5% of the tax liability with a further 5% due if the tax is still unpaid at 5 months and 5% again if still unpaid at 11 months. These penalties are the same the current SDRT penalties.

Interest on non-payment

The government proposes that interest rates will be set by HM Treasury and in most cases apply from when the tax becomes payable. The end date for interest will either be when the liability is paid or when set-off takes place. These arrangements for interest are the same as the current arrangements for SDRT.

Interest on repayment

The government proposes that repayment rates will also be set by HM Treasury and will apply from the repayment interest start date, which will be the later of the date that payment was made to HMRC or the date the amount was due and payable to HMRC. The repayment interest end date will be the date when the amount is repaid to the person, paid to another person or is offset against that or another person’s liability. These arrangements are the same as the current arrangements for SDRT.

Finally, the government also intends to address a lack of the clarity in the current legislation to make it absolutely clear that all transactions that are in scope, including those that qualify for an exemption or relief, must be notified to HMRC without exception.

Overall, the proposed design of the compliance regime for any new single STS tax is the same as the current SDRT regime. However, the government has looked to improve upon the current SDRT compliance regime rather than simply replicate it by addressing known issues that have arisen.

Question 46: Do you agree that the compliance regime as outlined above is appropriate and proportionate for any new single tax on shares?

Question 47: If not, what do you think should be different, how would you change the proposed compliance regime and why?

Redundant legislation

The following legislative provisions have been highlighted to the government as being redundant due to them not being relevant to the modern market or by newer legislation now covering that provision’s original function. The government is proposing not including any equivalent legislative provision within any new single tax for the following:

Section 99(6A), Finance Act 1986 (also known as the Eurotunnel provision). This provision was placed into the legislation to enable Eurotunnel shares to be taken out of scope for STS by removing them from the definition of chargeable securities

Section 90, Finance Act 1965. This provision sought to counter potential avoidance. The introduction of SDRT and SDLT have cut off this avoidance route and as such we consider this provision as no longer needed

Section 27(3)(b), Finance Act 1967. This provision sought to counter potential avoidance and has also been rendered redundant. The introduction of SDRT and SDLT has ensured that these transactions are caught through the application of their rules

Question 48: Do you agree that these provisions are now redundant and no longer needed? If not, can you explain why not including them in legislation for any new single tax would be an issue?

Question 49: Are there any other existing provisions that are now redundant and no longer needed?

Question 50: Are there any other existing provisions that do not work in practice?

Question 4

3.  Assessment of impacts

Accepted Answer

Summary of impacts

Year	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
Exchequer impact (£m)

Exchequer Impact Assessment

The Exchequer impact will be estimated following consultation and final design of the measure. The final costing will be subject to scrutiny by the Office for Budget Responsibility.

Impacts	Comment
Economic impact	The economic impacts will be identified following consultation and final design of the measure.
Impact on individuals, households and families	Any impacts will be identified following consultation and final design of the measure. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts	It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on businesses and civil society organisations	Any impacts will be identified following consultation and final design of the measure. The measure is not expected to impact on civil society organisations.
Impact on HMRC or other public sector delivery organisations	Any delivery funding requirements will be assessed following the outcome of the consultation.
Other impacts	Other impacts have been considered and none have been identified.

Question 5

4.  Summary of consultation questions

Accepted Answer