Modernisation of stamp taxes: consultation response

In April 2023, the then government published a consultation proposing to replace Stamp Duty and SDRT with a new single tax on transactions in securities. Two years later, the government has now published a summary of responses to that consultation together with its plans to take forward the main proposal. In essence, the government will introduce an online portal for the reporting and payment of the new single tax on transactions in securities and aims to have the new tax and portal up and running in 2027.

At the same time, the government is also taking the opportunity to consult on some more detailed features of the current 1.5% SDRT charge on transfers into clearance and depository receipt systems.

Background

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. Stamp Duty is mainly charged on a specific form known as a stock transfer form, 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.

Following the 2017 OTS report, the government concluded that it was necessary to consider the stamp taxes applying to shares (STS) as a whole and HMRC then subsequently issued a Call for Evidence in 2020, to explore potential guiding design principles and options for the modernisation of STS. This was followed in 2023 by the consultation on a proposal to replace Stamp Duty and SDRT with a single tax on transactions in securities. For more details of the original consultation, see our earlier article here.

Consultation response

The government has now published its response to the earlier consultation in “Modernisation of the stamp taxes on shares framework: Summary of responses”.

The government proposes to replacing Stamp Duty and SDRT with a mandatory, single self-assessed tax on securities (STS), with the following features:

• a new online portal to digitise the reporting and payment of current paper-based transactions, which issues a unique transaction number (UTRN). The CREST settlement system will continue to be used for those transactions where it is possible to do so
• retaining the requirement for registrars to have evidence of the reporting or payment of STS before updating share ownership on company registers – registrars will be able to register changes in ownership upon receipt of the UTRN. The UTRN will be issued on submission of the tax return on the portal (rather than payment) to avoid any delays in registration of shares.

The government intends to remove the current de minimis of £1000 on transactions for Stamp Duty purposes. The consultation response indicates that concerns around the administrative burden of bringing smaller transactions within scope will be dealt with by ensuring the portal will produce the necessary documentation.

The government intends for all transactions under the STS to have the purchaser as the liable person, and the accountable person as the purchaser or another person depending on the facts of the transaction, as it is for SDRT currently.

The earlier consultation proposed a single charging point at the relevant date, and a single accountable date of 14 days from the relevant date. The relevant date proposed was either the point of agreement, or where there are conditions on the agreement, the date those conditions are fulfilled, with an overall two-year time limit. In response to concerns raised over these suggestions, the government now proposes that the charging point will be the earlier of substantial performance or completion, with substantial performance defined along the lines of:

• for shares transferred in electronic settlement systems, when the details of the transfer are submitted and matched within the settlement system (as per current agreement to transfer)
• for shares being transferred outside of a settlement system, when the benefits of those shares are exercisable by the purchaser or their nominee/intermediary (for example dividend payments or voting rights).

The government intends to allow different accountable dates for transfers carried out in electronic settlement systems (14 days) and those taking place outside of electronic settlement systems (30 days). As regards uncertain or unascertainable consideration, the proposal is to largely follow the existing Stamp Duty Land Tax rules. However, the government has decided to extend the backstop to 4 years initially and allow for extension applications beyond the 4-year period up to a maximum of 12 years. The response document confirms that the government has no intention of introducing a need for formal valuations as part of the reporting process.

The consultation noted that Stamp Duty and SDRT have different geographical scopes and proposed to adopt the SDRT approach for the new STS. The response document notes that the government is still minded to take this approach, but will give further consideration to feedback that UK incorporation should be the sole factor to determine scope.

The government will proceed to determine the tax base on the basis of the 2023 consultation, covering non-government equities in UK companies, including stock and bonds with equity like features (defined along the lines of the loan capital exemption). Partnership interests will not be within the scope of STS (subject to anti-avoidance provisions).

The consultation response also confirms the government’s proposed approach on a number of detailed issues, including:

• confirming that the granting of a security interest will be outside the scope of STS and the government intends to ensure that the legislation is clear on this issue
• putting non-UK funds on an equal footing with regard to in specie contributions and redemptions with equivalent UK funds
• retaining the existing approach to mergers
• adopting the current SDRT approach to the treatment of warrants and call options

1.5% SDRT charge

In addition to responding to the consultation on the introduction of a single STS, the government has also published a separate consultation on the 1.5% SDRT charge for shares transferred into a clearance or depository receipt system. Once deposited in a clearance service or depository receipt system, securities can be traded without a change in the underlying company share register, as the legal title of the securities remains in the name of the clearance service or depository receipt issuer or that of its nominee. The higher 1.5% charge thus operates as a ‘season ticket’ or ‘price for entry’ into a clearance service or depository receipt issuer system.

Significant changes were made to the 1.5% charge from 1 January 2024 due to EU law no longer having effect on the application of the domestic legislation after 31 December 2023. The focus of this consultation is around the ensuring the principles of simplicity, ease of use and clarity apply to ensure that future legislation and guidance for the 1.5% charge is as clear and easy to understand as possible.

The consultation considers a number of issues of detail, including seeking feedback on:

• future-proofing legislation on the format of any receipt in order to remove any doubt that the charge can encompass physical or digital receipts or any type of future receipt
• the connected persons market value rules and the market value rules which relate specifically to the 1.5% charge, to ensure the application of them is clearer in legislation and guidance
• potential double reporting requirements for depository receipts and clearance services
• proposals to remove the charge to bearer instruments from any new legislation and references to “paired shares” on the basis that neither are features of the market any longer
• bringing the liable and accountable person in line with the liable and accountable person concept currently in SDRT so the transferee is the liable person and the depository receipt issuer or clearance service is the accountable person.

Next steps

The government intends to publish draft legislation in due course, before legislating for a single tax on securities to replace Stamp Duty and SDRT. Alongside the legislative work, the government will design and build an online service for the reporting and payment of the single tax; the timing of the legislation and the new online service being in place will be aligned. Stakeholders will be involved to ensure the design of the new online service meets taxpayer needs.

The government is aiming to introduce the single tax, its legislative framework and the portal in 2027.

Responses to the consultation on the 1.5% charge should be sent by 21 July 2025, by email to sts.consultation@hmrc.gov.uk.