HMRC has published draft legislation proposing changes to the calculation of UK stamp duty and stamp duty reserve tax (SDRT) for certain connected-company transactions.
The changes expand the scope of the so-called "market-value rule" and seem targeted at certain kinds of pre-sale reorganisations involving share-for-share exchanges.
Background
UK stamp duty is a documentary tax applying to papered transfers of securities with a UK nexus – it typically applies on the execution of a stock transfer form for the sale of UK shares. SDRT is a tax on agreements to transfer UK securities, even if they are not papered (although it is not normally the case that both SDRT and stamp duty are payable on the same transaction). Both charges are generally calculated by reference to the value of the consideration given for the securities sold.
Last year, HMRC introduced a departure from this method of computing the stampable / taxable consideration for certain transactions: stamp duty and SDRT on connected-company transfers of listed securities are now calculated by reference to the higher of the market-value of the securities, and the value of the consideration given for them (the "market-value rule").
What Is Changing?
Under the legislation in the draft Finance Bill, the market-value rule would be extended to transfers of, and agreements to transfer, unlisted securities between connected companies, if any part of the consideration consists of an issue of shares.
"Unlisted securities" means securities not listed on a regulated market, multilateral trading facility or recognised stock exchange and, broadly, companies are "connected" if they are under common-control.
It seems this new rule may be intended to prevent a form of stamp duty / SDRT avoidance on share sale transactions, involving the interposition and then sale of a non-UK holding company above the intended UK target. In particular, it seems likely to close down the benefit of so called "swamping" techniques when the holding company is inserted in the sale structure.
However, the new rule is not limited to cases of stamp duty or SDRT avoidance, and it should not be assumed that transactions driven entirely by commercial considerations will fall outside its scope.
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