HMRC consults on aligning stamp duty and SDRT

HMRC plans to extend the market value rule to tackle contrived arrangements when selling shares, announced at Budget 2018

The government is consulting on aligning the consideration rules of stamp duty and Stamp Duty Reserve Tax (SDRT) and introducing a general market value rule for transfers between connected persons to tackle contrived arrangements.

Reforming consideration rules will simplify stamp taxes on shares and prevent contrived arrangements being used to avoid tax. From 29 October 2018, a targeted market value rule will be introduced for listed shares transferred to connected companies to prevent forestalling.

There are various types of share transaction that are relieved or exempted from stamp duty and stamp duty reserved tax (SDRT). These exemptions and reliefs continue to apply following the introduction of the market value rule and would also continue to apply if the rule is extended to unlisted securities and transfers to connected persons other than companies.

The government is aware that arrangements involving connected parties can also be used to minimise stamp duty and SDRT on unlisted securities. Extending the market value rule to unlisted securities would level the playing field and minimise the scope for avoidance. Although it is unlikely that the market value rule will be extended to transfers between unconnected parties, HMRC is assessing the impact of a limited extension of the market value rule to transfers to individuals and other persons which are not companies.

Alignment of the definitions of consideration

The consideration on which tax is calculated is determined differently for stamp duty and SDRT. For SDRT, consideration is ‘money or money’s worth’. The consultation states ‘this is a broad concept capturing both cash and the value of any type of non-cash consideration that could be bought and sold in the open market. For stamp duty purposes, consideration is narrower. It comprises only cash, debt or the value of any other stock or marketable securities.’

If ‘money or money’s worth’ was adopted for stamp duty as well as SDRT, the transactions where the SDRT charge would no longer be marked include:

  • transfers in return for the issuance of rights under a contract, such as an insurance/reinsurance contract;
  • contributions to a partnership in return for a membership interest;
  • distributions in specie out of a partnership in return for a redemption of partnership capital;
  • contributions of assets to a fund vehicle in consideration for an issue of units in the fund that do not comprise stock;
  • distributions in specie from a fund in consideration for the redemption of units in the fund that do not comprise stock.

In SDRT, ‘money or money’s worth’ does not include specific rules to cover situations where the consideration is not known on the date on which the transaction takes place. Therefore, consideration must be estimated at that time. This could be a problem in respect of non-cash consideration where an estimate of its value must be made at the time of the transaction.

The 12-week consultation, Stamp taxes on shares consideration rules, closes on 30 January 2019. 

Report by Amy Austin

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