Measure

Stamp duty and Stamp Duty Reserve Tax - Transfer of unlisted securities to connected companies

The measure

Finance Act 2019 introduced a targeted market value rule to prevent the artificial reduction of the tax due on share acquisitions when listed shares are transferred to a connected company. This rule is being extended to unlisted shares in Finance Bill 2020 to prevent tax avoidance. A new stamp duty market value override rule will apply on transfers of unlisted shares to a company connected with the transferor where the consideration consists of, or includes, the issue of new shares. The rule will be applicable to transfer documents executed on or after Royal Assent to Finance Bill 2020. The chargeable consideration for stamp duty purposes will be the higher of the market value of the unlisted shares transferred and the amount or value of the consideration given for that transfer.

 

Who will be affected?

Companies that acquire unlisted securities from connected persons where part or all of the consideration consists of an issue of shares. The new provision also applies to the agreements to transfer unlisted shares that are chargeable to stamp duty reserve tax and includes transfers to a person who provides clearance services, or issues depositary receipts.

 

When will the measure come into effect?

This provision will be included in Finance Bill 2020 and will have effect for instruments of transfer executed on or after Royal Assent. 

Our view

The introduction of the new rule means that ‘share swamping’ structures will no longer be able to be relied upon to reduce the amount of stamp duty chargeable on a transaction. It was initially thought that the market value charge would apply to any transfer of unlisted shares or securities between connected companies at an undervalue. It is welcome news that the charge will only apply where the consideration includes an issue of new shares. This means that company reorganisations which involve contributions, transfers and distributions of shares for nil consideration will not be affected by the over-riding market value charge.