Policy paper

Stamp Duty, Stamp Duty Reserve Tax and Stamp Duty Land Tax: exemption for financial institutions in resolution

Published 6 July 2018

Who is likely to be affected

Businesses and individuals who are bondholders of a failing financial institution. Also businesses who temporarily hold issued share capital of, and property held by, a failing financial institution.

General description of the measure

Under the Banking Act 2009, the Bank of England has various resolution stabilisation powers to manage a failing financial institution in an orderly way. These ensure that an institution’s operations can be maintained to protect financial stability, depositors and the taxpayer. Upon exercise of a resolution stabilisation power, the Bank of England may arrange a transfer of the failed institution’s issued share capital in exchange for temporary certificates issued to bondholders of the failed institution, or a transfer of securities and/or property held by the failed institution to a temporary holding entity appointed by the Bank of England or to a temporary public body. Both transfer situations are within scope of a charge to Stamp Duty, Stamp Duty Reserve Tax (SDRT) or Stamp Duty Land Tax (SDLT).

When an institution is placed into resolution and a stabilisation power exercised, this legislation will provide an exemption from a charge to Stamp Duty, SDRT and SDLT on certain transfers of securities and property from the failed institution to the appointed temporary holding entity, and on transfers of securities to bondholders following exercise of the bail-in stabilisation power. This reduces the need for specific regulations to be made under section 74 of the Banking Act 2009 to provide an exemption from a Stamp Duty, SDRT and/or SDLT charge.

Policy objective

Section 74 of the Banking Act 2009 currently allows HM Treasury to make regulations following exercise of a resolution stabilisation power to provide a tax exemption which includes Stamp Duty, SDRT and SDLT on transfers of securities and property. By reducing the need for making specific regulations, this measure will strengthen and simplify the process of resolving a failed financial institution and uphold the ’no creditor worse off’ principle, by ensuring an exemption from Stamp Duty, SDRT and SDLT is available at the time of resolution announcement.

Background to the measure

The measure was announced at Autumn Budget 2017. No consultation is considered necessary as the measure strengthens and simplifies the resolution process by which an exemption from Stamp Duty, SDRT and SDRT is made available.

Draft legislation was published for consultation on 6 July 2018.

Detailed proposal

Operative date

The measure will have effect on and after the date of Royal Assent to Finance Bill 2018-19.

Current law

Following exercise of a stabilisation power, Section 74 of the Banking Act 2009 allows HM Treasury to make regulations in connection with a resolution share or property transfer instrument, or share or property transfer order to provide an exemption from Stamp Duty, SDRT and SDLT.

Proposed revisions

Legislation will be introduced in Finance Bill 2018-19 providing an exemption from Stamp Duty, SDRT and SDLT. This will insert new sections 85A in FA1986 and 66A Finance Act 2003, which will apply where, following exercise of certain resolution stabilisation powers in the Banking Act 2009, UK securities and/or property (including land) are transferred by a share and/or property instrument/order to a temporary holding entity appointed by the Bank of England or to a temporary public body. The exemption will extend to transfers of securities in exchange for temporary certificates issued to bondholders that identify their entitlement to the securities.

The exemption will not apply:

• to an instrument or order transferring the failed institution’s issued share capital or a transfer of its assets to a third party purchaser following exercise of a private sector purchaser resolution stabilisation power
• where, under the terms of the resolution, the institution’s issued share capital and/or its assets are onward transferred from a temporary resolution holding entity or public body to a third party purchaser

These transfers will be subject to a charge to Stamp Duty, SDRT or SDLT in the usual way.

Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023
nil	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

The measure is expected to have no financial impact on individuals who are bondholders of the failed institution and who receive securities in exchange for temporary certificates issued to them that identify their entitlement to the securities following exercise of a stabilisation power. However, this will provide clarity to bondholders, ahead of the exercise of stabilisation powers.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not expected that this measure has any impacts on groups sharing protected characteristics.

Impact on business including civil society organisations

The measure is expected to have no impact on businesses or civil society organisations.

Operational impact (£m) (HMRC or other)

There will be no significant operational impacts as a result of this measure.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from settlement services and tax returns reported to HMRC.

Further advice

If you have any questions about this change, please contact Simon English on Telephone: 03000 585446 or Stephen Roberts on Telephone: 03000 585455 or email: stamptaxes.budget&financebill@hmrc.gsi.gov.uk.