View the related Tax Guidance about Stamp Duty Reserve Tax
Stamp duty reserve tax
Stamp duty reserve taxStamp duty reserve tax (SDRT) was introduced by Finance Act 1986 to ensure that a charge equivalent to stamp duty would apply on the transfer of uncertificated securities. As there is no document transferring the shares in a paperless transaction, and therefore no document to stamp, without SDRT there would be no mechanism to collect the stamp duty.In practice, the majority of SDRT is paid automatically on stock exchange transactions dealt with electronically via the UK Central Securities Depository (CREST). Analysis of the application of SDRT to financial market trading is not outlined further in this guidance note.Transfers of securities outside CREST are normally effected by a transfer document on which stamp duty is paid. This generally has the impact of cancelling any SDRT liability (see below). Nevertheless, taxpayers and advisers need to be aware of the potential application of SDRT where there are agreements to transfer securities, in particular looking out for situations where there is an agreement to which SDRT applies but no corresponding document which is subject to stamp duty. Without further planning, the SDRT liability would not be extinguished in such circumstances.A consultation was launched in April 2023 by HMRC into the possibility of replacing stamp duty and SDRT with a single stamp tax on shares. For more information, see the Stamp duty â basic rules guidance note.Basic rulesSDRT applies where there is an unconditional agreement, whether documented or otherwise, to transfer 'chargeable securities' (see the definition below) for consideration in 'money
Introduction to stamp taxes
Introduction to stamp taxesThere are a five UK stamp taxes which apply to transactions involving UK land and buildings, stocks and marketable securities and partnership interests. The five stamp taxes are:â˘stamp duty land tax (SDLT), applying to transactions in land and buildings in England and Northern Ireland â˘land and buildings transactions tax (LBTT), applying to transactions in land and buildings situated in Scotlandâ˘land transaction tax (LTT), applying to transactions in land and buildings situated in Walesâ˘stamp duty applying to instruments (for example, a stock transfer form) that transfer UK shares and certain other types of stocks and securitiesâ˘stamp duty reserve tax (SDRT) applying to electronic (or paperless) transfers of UK shares and certain other securitiesIn addition, there is separate property tax known as the annual tax on enveloped dwellings (ATED) which should be considered along with the SDLT (or LBTT/ LTT) consequences of the acquisition of residential property. Broadly, ATED applies to the acquisition of certain UK dwellings worth more than £500,000 by companies and other types of ânon-natural personsâ. For more information, see the Overview of the ATED regime guidance note. Each stamp tax is briefly described below, with links to separate guidance notes containing further details.SDLT, LBTT and LTTSDLT was introduced on 1 December 2003 to replace stamp duty on transactions in land and buildings. Its scope is much wider than stamp duty in that it
Stamp duty â basic rules
Stamp duty â basic rulesIntroduction and scopeStamp duty is a tax on documents and has existed for over 300 years. During the latter part of the 20th century, and in particular following the introduction of stamp duty land tax (SDLT), the scope of stamp duty has been narrowed significantly.The documents which are now within the scope of stamp duty are broadly confined to:â˘instruments relating to stock or marketable securitiesâ˘instruments transferring an interest in a partnership the assets of which include stock or marketable securitiesâ˘instruments which transfer UK land and buildings where the contract was entered into before 10 July 2003 and which are not within the SDLT regimeIn practice, by far the most common circumstance where stamp duty is encountered is on stock transfer forms for the purchase of unquoted shares in UK registered companies.The stamp duty statute is spread over many years, the most important legislation being the Stamp Act 1891 and FA 1999, Sch 13.HMRC manual references are to the Stamp Taxes on Shares Manual (STSM).On 21 July 2020, the Government issued a call for evidence inviting views on the design for a new framework for stamp duty and stamp duty reserve tax (SDRT) to help inform a broader long-term modernisation of the regimes. The consultation closed on 13 October 2020 and a summary of responses was published on 20 July 2021. In April 2023, HMRC published a consultation on whether to have a single tax on securities rather than the current framework of
Employee trusts â implications of disguised remuneration and where are we now?
Employee trusts â implications of disguised remuneration and where are we now?Employee benefit trusts (EBTs) are commonly used to support employeesâ share schemes and to provide other benefits to employees. For example, EBTs were used to provide additional benefits where the previous reduction of the pension lifetime allowance resulted in employees having significantly less tax efficient pension provision than was intended. Many employers established employer financed retirement benefit schemes although the trusts were in fact an EBT that permitted the provision of retirement benefits. EBTs were also used to provide what was believed to be âtax efficientâ bonuses â contributions to an EBT would be held for an employeeâs (or a class of employeesâ) benefit. The EBT would either invest for the benefit of the employees, or more widely, the EBT would provide a loan to the employee. The employee would have the benefit of the loan and not suffer the tax liability of a payment made outright to the employee.The use of EBTs has been significantly affected by the introduction of the disguised remuneration rules. For further information, please see the Disguised remuneration â overview guidance note. There are statutory exclusions from those rules to cover many of the share scheme-related activities of EBTs. However, providing loans or opportunities for wealth creation through long-term investment schemes, has declined due to the tax and NIC treatment as a result of the disguised remuneration legislation.Legislation introduced in Finance Act 2014 promoted employee ownership of companies. Employee owners who dispose of
Contractual disclosure facility (CDF)
Contractual disclosure facility (CDF)IntroductionThe vast majority of HMRC enquiries, or âchecksâ as they are now more commonly called, are carried out by staff in the network of tax offices across the UK. A formal notice is issued and the individual, sole trader, partnership or limited company is told which tax return is to be the subject of a check. Typically, the HMRC officer requests information to conduct the check, in order to confirm the accuracy and completeness of the tax return in question.However, HMRC also has specialist teams conducting civil and criminal investigations where it suspects serious tax fraud, involving direct and / or indirect taxes, has taken place. HMRC considers a tax fraud to involve an element of deliberate behaviour where, for example, there has been a failure to declare a tax liability, a concealment or withholding of information or a misrepresentation of facts.HMRCâs regime for handling serious fraud cases is called the contractual disclosure facility (CDF). Code of Practice 9 (COP 9, also known as Code 9) governs how HMRC investigates suspected fraud and sets out the rules and conditions of the CDF policy. Under CDF, HMRC only guarantees not to prosecute where the person involved enters and fully complies with the terms on offer as part of the CDF.Under CDF, the taxpayer has the following two options:â˘to accept the CDF regime, ie admit to the fraud and make a full disclosure to HMRC, orâ˘not to cooperate with HMRC, in which case they have no
Disclosure of tax avoidance schemes (DOTAS) â overview
Disclosure of tax avoidance schemes (DOTAS) â overviewIntroductionOver many years, successive Governments have introduced measures to curb what they have seen as being unacceptable tax avoidance. This is different to tax evasion, where sums or sources of income or gains are concealed or omitted from a taxpayerâs returns. Avoidance is where the taxpayer uses the way in which tax law, or a combination of tax laws, works to achieve a tax advantage, such as minimising or delaying tax bills (or maximising or accelerating a tax repayment), otherwise than where the legislation in question was introduced with the aim of delivering that tax advantage.In addition to the inclusion of numerous specific anti-avoidance provisions designed to stop identified avoidance schemes, the UK tax code includes several wider anti-avoidance tools:â˘the regime for disclosure of tax avoidance schemes (DOTAS) â aimed at providing HMRC with early intelligence about avoidanceâ˘the general anti-abuse rule (GAAR) â aimed at counteracting any tax advantage delivered by avoidance not caught by more specific measures (see the General anti-abuse rule (UK GAAR) guidance note)â˘accelerated tax payments â this can be used to require the taxpayer to pay the disputed tax or national insurance up-front, so that the cash flow advantage during the enquiry/litigation rests with HMRC (see below)â˘the regime for promoters of tax avoidance schemes (POTAS) â aimed at changing the behaviour of agents who offer high-risk avoidance schemes to their clients (see Simonâs Taxes A7.301)â˘the regime for serial tax avoiders â aimed at
Buying a company â summary of key issues
Buying a company â summary of key issuesIntroduction to buying a companyThere are many tax related matters to consider when one company purchases the shares of another. Whilst tax is a major factor in this type of transaction, the impact of any potential tax consequences must be balanced with other wider commercial factors. This guidance note is written from the perspective of the acquiring company (or group of companies). Some of the relevant considerations are set out below, split between pre- and post-completion matters for ease of reference. More detailed commentary can be found in Tolleyâs Tax Planning 2022â23, Chapter 3, âBuying a companyâ.It should be noted that distressed company purchases give rise to a range of additional issues, which are not covered in this note. For an overview of some of the relevant matters to consider in this regard, see âDistressed company purchasesâ, by Eloise Walker in Tax Journal, Issue 1140, 21 (28 September 2012).Pre-completion mattersThe directors of the acquiring company will work with many different advisers throughout the transaction to acquire shares in a company. Depending upon the nature of the transaction this is likely to include a team of lawyers, corporate financiers, tax advisers, valuations specialists, etc. The key driver for each of these parties at this stage of the transaction is to agree the detailed terms of the share purchase agreement (SPA) to the satisfaction of their respective clients, including the price payable for the shares and / or assets being acquired.Due diligenceA due diligence
Stamp duty â corporate transactions
Stamp duty â corporate transactionsApplication of basic rules and introduction to corporate reliefsThe basic rules for stamp duty apply to companies as they do to other taxpayers. See the Stamp duty â basic rules guidance note for an introduction to the stamp duty regime.However, the stamp duty legislation also includes important reliefs which apply in relation to particular corporate transactions.The most commonly encountered reliefs are:â˘associated company relief (known as group relief)â˘relief for insertion of a new holding companyâ˘reconstruction reliefThese are explained in further detail below.There are also reliefs applicable for transfers to recognised intermediaries, repurchases and stock lending, and transfers to charities.In contrast to transactions which are exempt from stamp duty, even where reliefs eliminate the stamp duty liability in full, the transfer document will still need to be sent to HMRC for adjudication and stamping. See the Stamp duty â basic rules guidance note for further details.Reliefs should be applied for in writing with sufficient and appropriate evidence to support the claim. HMRC will scrutinise applications carefully and thorough checks should be made before sending the application that all required documentation is enclosed and any confirmations and certifications are made by the appropriate individual(s). All claims for relief should be emailed rather than sent by post. Further details, including the relevant email address, can be found on the GOV.UK website.Relief for transfers between associated companies (group relief)Group relief is available where the instrument concerned transfers the beneficial interest in property (now in practice almost entirely
Loan notes and qualifying corporate bonds (QCBs) and non-QCBs
Loan notes and qualifying corporate bonds (QCBs) and non-QCBsOn the disposal of the shares in a company, a seller may receive loan stock (loan notes) in the acquiring company as consideration (or part consideration) for the sale.For tax purposes, loan notes are either qualifying corporate bonds (QCBs) or non-qualifying corporate bonds (non-QCBs). The expression âcorporate bondâ is a general commercial term for securities issued by companies to raise debt finance and does not have any special tax significance except in the process of identifying QCBs and non-QCBs. The issue, transfer and redemption of loan notes do not generally give rise to any liability to stamp duty or stamp duty reserve tax.The way in which the loan notes are treated for tax purposes depends on whether the loan notes are classified as QCBs or non-QCBs. HMRC needs to be satisfied that the issue of the loan note is not for the purposes of tax avoidance. Therefore, it is always advisable to seek clearance from HMRC when entering into a transaction involving loan notes. For more information on this, see the Paper for paper treatment clearances guidance note. Much of the commentary below relates to the tax position of the individual investor rather than the company. It is important for company directors and their advisers to understand the tax implications for investors when structuring transactions, as it is often a critical part of the deal. However, the individuals involved must obtain their own tax advice, which takes into account all of
Employee benefit trusts overview and administration
Employee benefit trusts overview and administrationBackgroundEmployee trusts are commonly used to support employee share schemes but can also be used as part of an arrangement companies put in place to pay cash bonuses or other benefits. There are many different names for them, including employee share ownership plans (ESOPs), employee share trusts (ESOTs) and employee benefit trusts (EBTs), but they all fundamentally serve the same purpose as discretionary trusts set up by a company or group of companies as part of its remuneration strategy for employees.An EBT will be established by a company (the sponsoring company) which will provide it with assets (usually cash or shares). An EBT will often be funded by way of loan or the company may make it an outright gift. The document governing how the EBT operates is called the trust deed and rules. This lays down the obligations of the sponsoring company and contains the powers and duties of the trustees. The trustees must act in accordance with the terms of the trust deed and rules and also act in the best interests of the beneficiaries.Despite the negative publicity surrounding the role EBTs have played in anti-avoidance strategies to provide employees with tax free remuneration, Graham Nuttall, in his review of employee ownership highlights the benefits of EBTs as vehicles for the long-term ownership of companies. Following the report and consultation exercise, certain tax breaks have been introduced for companies who are owned and controlled by trust vehicles (see the Employee trusts â
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