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Tax Bite – Securities Transfer Tax replacing stamp duty & SDRT on shares – 10 key points

In 2027, stamp duty and stamp duty reserve tax on share transfers will be replaced by a single digitally administered tax, to be known as securities transfer tax (STT). The draft legislation was published in July for consultation and representations can be made until 7 September.

Fundamentally, for private company share transfers we will still be looking at a 0.5% charge and with very similar reliefs available to those that will be familiar from the stamp duty regime, but there will be a number of interesting changes. In this Tax Bite, we pick out ten headline points for corporate lawyers.

1. STT will be effectively instant (the end of the need for the declaration of trust route). STT will be administered through an online HMRC portal, and when the filing and payment are made through that portal, an instant acknowledgement should be received. So, where it is important that share registers are written up to reflect one transfer before undertaking other steps in short order (e.g. on demerger steps – but see below on these), it will no longer be necessary to go through the somewhat cumbersome declaration of trust route often encountered under the current stamp duty regime.
2. Word of caution on agent submissions – joint liability for the STT. The draft legislation says that an agent authorised by the buyer for the purposes of dealing with the STT, and whose authority is confirmed to HMRC, will be accountable for paying the tax as if jointly and severally liable. Corporate lawyers who routinely complete stamp duty filings for clients will be concerned by this, and hopefully there will be some clarification and restriction of this concept in the final legislation.
3. No more rounding up to the nearest £5, and no £1,000 consideration de minimis. Under the new electronic regime, the tax will be calculated to the nearest penny based on 0.5% of the chargeable consideration.
4. “Money’s worth” will be the measure of changeable consideration. Under the current stamp duty rules only cash, marketable securities and debt assumption / release count as chargeable consideration. Money’s worth will be wider. One question arising from this is where a target company owed debt to the seller, normal practice is to reduce the consideration for the shares and for there to be a separate obligation for the buyer to procure that the target repays the debt to the seller, and stamp duty is not paid on the latter amount. The agreement to procure repayment of debt might be viewed as consideration in money’s worth under the new regime.
5. Simplification of the rules around Completion Accounts adjustments and earn outs. The existing stamp duty rules around uncertain, unascertainable and contingent consideration are somewhat archaic. Things will be simpler under STT, as the general rule will be that STT is paid on an estimate initially, and must be trued up once the actual consideration is known. There will however be a deferral possibility where the consideration depends on uncertain future events, it is reasonable to expect it will not be known within six months; and there are no arrangements with a main purpose of enabling STT deferral. The initial deferral is for a maximum of 4 years but can be renewed (with new claims required) up to twice more i.e. for an overall maximum of 12 years.
6. Reliefs will simply be claimed in the online submission, with no adjudication applications as we currently have for several stamp duty reliefs.
7. “Demerger relief” (section 75 relief) will be expanded and simplified, but watch out for other changes possibly coming on demergers. Section 75 relief has proved to be problematic as HMRC has taken the view (contested by many) that if a demerger of (say) a trading company to a “Newco 2” is to be followed quickly by a sale of Newco 2, there is no “reconstruction”, which is a requirement for the relief. Under the planned new version of this relief, the requirement for a reconstruction has been dropped and what is transferred can be a “business” as opposed to an “undertaking”, which should also be wider. However, the government is consulting on changes to reductions in capital which, if carried into effect in accordance with the proposals in that consultation, will mean that reduction of capital demergers can no longer be used in the way they often are now to facilitate a sale. We will issue a separate Tax Bite on this.
8. Non-UK company shares will no longer be within the regime. In theory under the current regime if a transfer of shares relates to a “thing done” in the UK, it is within the scope of UK stamp duty, although for overseas company share transfers the UK stamp duty is in practice often deferred indefinitely by executing and retaining documents outside the UK. Under the new regime, transfers of non-UK company shares simply won’t be within the scope of STT.
9. Anti-swamping will still apply. For transfers between connected companies where the consideration includes the issue of shares, STT will be charged on not less than the market value of the target company shares transferred.
10. HMRC challenges. Particularly with reliefs becoming self-assessed rather than adjudicated by HMRC, it should be noted that STT will be a tax like most others in terms of HMRC’s ability to enquire into returns, make discovery assessments, and impose penalties and interest for errors and underpayments. So, it will remain important to seek advice where required and ensure that filing positions adopted are robust, especially as STT may become a focus of tax due diligence exercises in future.

We will provide further updates on STT following closure of the consultation and once the draft legislation becomes final and the commencement date is confirmed. In the meantime, please do get in touch if you would like to discuss any of the above or if you may require any assistance with the current stamp duty regime in respect of your transactions.