The Securitisation Companies and Qualifying Transformer Vehicles (Exemption from Stamp Duty) Regulations 2022
Published 30 November 2021
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This publication is available at https://www.gov.uk/government/publications/securitisation-and-insurance-linked-securities-arrangements-allowing-them-to-operate-more-effectively/the-securitisation-companies-and-qualifying-transformer-vehicles-exemption-from-stamp-duty-regulations-2022
Who is likely to be affected
Taxpayers, investors, advisers and tax professionals concerned with securitisations or insurance-linked securities.
General description of the measure
This measure provides exemption from Stamp Duty and Stamp Duty Reserve Tax (SDRT) for the transfer of certain types of loan notes issued as part of securitisation and insurance-linked securities (ILS) arrangements. By providing certainty that a charge to Stamp Duty or SDRT will not arise on these standard notes, this measure will reduce the cost and complexity of securitisation and ILS arrangements and encourage their location in the UK.
Policy objective
The government is keen to ensure that the UK’s Stamp Duty and SDRT rules contribute to maintaining the UK’s position as a leading financial services centre.
Standard loan notes issued as part of securitisation and ILS arrangements commonly have characteristics which make it unlikely or uncertain that the existing loan capital exemption will apply.
Where notes clearly do not fall within the loan capital exemption or where there is uncertainty, taxpayers use alternative structuring arrangements to ensure that a charge to Stamp Duty or SDRT will not arise. Additional processes add costs and complexity and may be a factor in arrangements being implemented outside the UK.
This measure provides certainty that no Stamp Duty or SDRT charge will arise on the transfer of capital market investments issued as part of capital market arrangements by note-issuing securitisation and ILS special purpose vehicles (SPV).
Background to the measure
Stamp Duty is a charge on (paper) instruments that transfer the beneficial interest in stock or marketable securities. SDRT is charged on agreements to transfer uncertificated (paperless) shares and other chargeable securities.
The transfer of loan capital is generally exempt from Stamp Duty (and therefore SDRT) under the loan capital exemption. There are exceptions to this for loan capital which has certain equity-like features.
Securitisation is a widely used method of raising debt finance on the capital markets through the issue of asset-backed securities. It can also aid capital, liquidity and risk management. In securitisations, a SPV issues notes backed by the collateral of securitised assets.
ILS are an alternative form of risk mitigation for insurance and reinsurance companies. They offer a means of transferring insurance risk to capital market investors. Arrangements will typically involve an insurer or reinsurer transferring specific risks to an insurance SPV known as a qualifying transformer vehicle. The qualifying transformer vehicle will then issue notes to investors to raise sufficient capital to cover the transferred insurance risk.
Standard loan notes issued as part of securitisation and ILS arrangements commonly have characteristics which make it unlikely or uncertain that the loan capital exemption will apply.
Following continuing dialogue with industry, a consultation document entitled ‘Reform of taxation of securitisation companies’ was issued on 23 March 2021, for comments by 3 June 2021. This covered whether there should be changes to further clarify or reform certain aspects of the Stamp Duty loan capital exemption as it applies to securitisations and to ILS. It also covered whether to clarify or reform certain aspects of the securitisation regime.
The summary of responses was published on 30 November 2021. This measure addresses the outcome of the consultation for one of the areas covered. A separate measure addresses the outcome for the 2 other areas covered in relation to the securitisation regime.
The government is now seeking comments on draft regulations, the Securitisation Companies and Qualifying Transformer Vehicles (Exemption from Stamp Duty) Regulations 2022, to implement the proposed changes. The instrument will be made under an enabling power taken in the Finance Bill 2021 to 2022. A tax information and impact note was published at Autumn Budget 2021 to accompany the enabling power included in Finance Bill 2021 to 2022.
The government is also seeking comments on draft regulations in relation to the securitisation regime.
Detailed proposal
Operative date
The draft regulations are expected to come into force in Spring 2022.
For the charge to Stamp Duty under schedule 13 to the Finance Act 1999 or section 67 or 70 of the Finance Act 1986, the measure will have effect in relation to instruments executed on or after the date the regulations come into force.
For the charge to SDRT under section 87 of the Finance Act 1986, the measure will have effect for agreements to transfer made on or after the date the regulations come into force.
Where the agreement to transfer is conditional, the measure will have effect where the condition is satisfied on or after the date the regulations come into force.
Where the charge is under section 93 or 96 of the Finance Act 1986 in relation to transfers to depositary receipt issuers or clearance services the measure will have effect for transfers on or after the date the regulations come into force.
Current law
Schedule 13 to the Finance Act 1999 provides for the standard rate for Stamp Duty at 0.5% on a transfer of stock or marketable securities.
Sections 67 and 70 of the Finance Act 1986 provide for a higher 1.5% Stamp Duty where securities are transferred to a person who provides a clearance service or who issues depositary receipts.
The main charging provisions and scope of SDRT are contained within sections 86 to 99 of the Finance Act 1986.
Section 87 of the Finance Act 1986 provides for the standard rate of SDRT at 0.5% on agreements to transfer chargeable securities.
Sections 93 and 96 of the Finance Act 1986 provide for a higher 1.5% SDRT charge where securities are transferred to a person who provides a clearance service or who issues depositary receipts.
Section 79 of the Finance Act 1986 provides for an exemption from Stamp Duty for the transfer of loan capital subject to certain conditions.
Proposed revisions
Following a period for public comment on the draft regulations, a statutory instrument will be introduced to provide a new exemption from Stamp Duty and SDRT.
The statutory instrument will provide an exemption from Stamp Duty and SDRT for the transfer of capital market investments issued as part of capital market arrangements by note-issuing securitisation companies and qualifying transformer vehicles. There are exceptions to the exemption where the specific securitisation or ILS tax regime did not apply when the capital market arrangement was entered into or where notes carry certain conversion or acquisition rights.
Summary of impacts
Exchequer impact (£million)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| Empty | Empty | Empty | Empty | Empty | Empty |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is expected to have no impact on individuals as it only affects businesses.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not expected that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure will impact on those businesses, including civil society organisations, involved in securitisation and ILS arrangements by reducing costs and complexity.
This measure is expected to have a negligible impact on business administrative burdens. There will be a one-off cost of familiarisation with the new rules. This is expected to be minimal. There are expected to be no continuing costs. Customer experience could see an improvement given that this measure is expected to make the Stamp Duty and SDRT position more certain and simpler.
Operational impact (£million) (HMRC or other)
This measure is expected to have a negligible operational impact on HMRC or on others.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The impact of the measure will be kept under review through regular communication with affected taxpayer groups, primarily through their professional representatives and a securitisation industry consultative group.
Further advice
If you have any questions about this change, contact the Stamps Taxes Policy Team: email: stamptaxes.budgetfinancebill@hmrc.gov.uk.
Declaration
John Glen MP, the Economic Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.