Policy paper

Transfer of unlisted securities to connected companies for Stamp Duty and Stamp Duty Reserve Tax

Updated 11 March 2020

Who is likely to be affected

Companies that acquire unlisted securities from connected persons as part of company reorganisations.

General description of the measure

The measure will extend the Stamp Duty and Stamp Duty Reserve Tax (SDRT) market value rule to the transfer of unlisted securities to connected companies.

The measure is narrowly targeted to only apply where contrived arrangements are used to minimise tax in circumstances where Stamp Duty relief is not available.

It will also prevent 2 charges arising on most capital reduction partition demergers.

Policy objective

HMRC is aware of contrived arrangements involving the transfer of unlisted securities to connected companies to minimise Stamp Duty liability on company reorganisations.

HMRC is also aware that a taxpayer who follows the rules could currently incur 2 charges on a capital reduction partition demerger.

This measure makes the tax system fairer and provides certainty for taxpayers by removing an unfair advantage and ensuring that most capital reduction partition demergers incur a single Stamp Duty charge.

Background to the measure

Following announcement at Budget 2018, the government consulted on the impacts of extending the market value rule, introduced in Finance Bill 2018-19, to unlisted securities. HMRC held the consultation from 7 November 2018 to 30 January 2019.

Detailed proposal

Operative date

For the charge to Stamp Duty under paragraph 1, schedule 13 Finance Act 1999, the measure will have effect in relation to instruments executed on or after Royal Assent 2020.

For the charge to SDRT under section 87 Finance Act 1986, the measure will have effect for agreements to transfer made on or after Royal Assent 2020.

Where the agreement to transfer is conditional, the measure will have effect where the condition is satisfied on or after Royal Assent 2020.

Where the Stamp Duty or SDRT charge is under section 67, 70, 93 or 96 Finance Act 1986 in relation to transfers to depositary receipt issuers or clearance services the measure will have effect for transfers on or after Royal Assent 2020 (whenever the arrangement was made).

Current law

The current law in respect of Stamp Duty is included at:

• section 6 Stamp Act 1891
• schedule 13 Finance Act 1999
• section 90 Finance Act 1965
• sections 67 and 70 Finance Act 1986
• section 47 Finance Act 2019
• section 75 Finance Act 1986
• section 77 and 77A Finance Act 1986

The current law in respect of consideration for SDRT is included at:

• sections 87, 93 and 96 Finance Act 1986
• section 48 Finance Act 2019

Proposed revisions

Legislation will be introduced in Finance Bill 2019-20, extending the market value rule at sections 47 and 48 Finance Act 2019 to transfers of unlisted securities to connected companies.

Transfers of unlisted securities to connected companies will be caught by the extended market value rule where there is an issue of shares by way of consideration for the transfer.

The legislation will amend the rules on share for share exchanges so that most share for share exchanges, which are part of a partition demerger arrangement will not have a disqualifying arrangement for the purposes of those sections.

Summary of impacts

Exchequer impact (£m)

2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
-	+5	+5	+5	+5	+5

These figures are set out in Table 2.1 of Budget 2020 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.

Economic impact

The measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is not expected to impact on individuals as it only affects businesses through extending the market value rule to unlisted securities transferred to connected companies. There is not expected to be any impact on family formation, stability or breakdown.

Equalities impacts

It is not expected that the measure will impact on groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on an estimated 250 to 350 businesses in the first year (expected to reduce in subsequent years). One-off costs will include familiarisation with the new rules and presenting documents for stamping and adjudication where previously this was not required as a charge did not arise.

There are not expected to be any ongoing costs. It is not anticipated that the measure will increase the need to get shares valued as the shares would be expected to be valued anyway in respect of the affected reorganisations. This measure is expected to have no impact on civil society organisations.

Small and micro businesses: the affected arrangements will typically involve private companies with a small number of shareholders (often owner-manager businesses) and an estimated average value of £2.5 million.

We therefore expect small businesses (up to 49 FTE employees) including micro-businesses (up to 10 employees) to be more impacted by the measure.

This measure was consulted on following announcement at Budget 2018.

Operational impact (£m) (HMRC or other)

The financial consequences of this measure for HMRC is estimated to be £230,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact Stephen Roberts on telephone: 03000 585 455 or Simon English on telephone: 03000 585 446.

You can also email: stamptaxes.budgetfinancebill@hmrc.gsi.gov.uk.