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Stamp duty: 'long overdue' reform could benefit corporate transactions, says expert

Recommendations for reform stamp duty are "long overdue" and, if adopted, could have welcome benefits for corporate transactions, particularly reorganisations, a corporate tax expert has said.14 Jul 2017

Suggestions made by the Office of Tax Simplification (OTS) include allowing for the digital collection of stamp duty and introducing the ability for company shareholder registers to be updated immediately on receipt of a unique transaction reference number. The OTS paper was published in response to an initial request for information by the OTS, earlier this year.

The OTS also recommended that stamp duty becomes an assessable tax rather than continuing to be payable on the current 'voluntary' basis. Under the current system the legislation imposes no obligation to pay stamp duty, instead it prevents the transfer of shares by way of an unstamped document being registered in the company's register of members.An unstamped document cannot be relied upon in court.  

John Christian of Pinsent Masons, the law firm behind Out-Law.com, said: "With stamp duty having been with us since 1694, proposals to reform, simplify and digitise it are arguably long overdue. Pinsent Masons responded to the initial request for information and it is pleasing to find that the OTS has agreed with many of the recommendations we made."

Stamp duty is charged on certificated share transactions handled using paper stock transfer forms, outside the CREST settlement system, and is administered by impressing those forms with physical stamps. According to the report there are still over 100,000 transactions each year which involve impressing documents with physical stamps.

Stamp duty on land transactions was replaced with stamp duty land tax (SDLT) in 2003, and share trading transactions within CREST are subject to stamp duty reserve tax (SDRT). Both these taxes are largely digitised. Scottish land transactions are subject to Land and Buildings Transaction Tax (LBTT).

"Stamp duty is a throwback to a different tax world and is an anachronism in a tax regime built around self-assessed taxes, including SDRT and SDLT," Christian said.

Many of the problems with the current system stem from the fact that on execution, a stampable document must be posted to the Stamp Office in Birmingham, with a cheque or bank transfer for the duty, so that a physical stamp can be impressed on it. The stamped document is returned by post and then sent to the relevant company registrar. Legal title to shares in a UK company does not pass until the register of members is updated, but the registrar of a company cannot lawfully update the register unless the transfer document has been stamped.

The changes proposed by the OTS should allow for company shareholder registers to be written up following submission of an electronic return rather than the actual payment of stamp duty, which would be required to follow. If implemented, this system would be particularly beneficial for corporate reorganisations which involve several share transfers within a short space of time, Christian said.

As well as the practical recommendations, the OTS also puts forward a number of substantive recommendations which largely follow a path to potentially merging stamp duty with SDRT. The OTS report recommended that achieving such a merger should be a "clear direction of travel".

"The root and branch approach suggested by the OTS will be very welcome in corporate transactions where the paper acknowledges that time-consuming and complex workarounds have been needed to ensure compliance with company and stamp duty law," Christian said. "It is particularly welcome that the OTS recommends aligning stamp duty with stamp duty reserve tax rather than have parallel regimes applying to share transactions, and amending company law so that registrars can comply with their obligations in relation to stamping on the basis of appropriate evidence.”

"It remains to be seen whether there will be an appetite within HMRC, the Treasury and parliament to implement any of the reforms recommended by the OTS. Under the relevant provisions within the Finance Act 2016, which place the OTS on a statutory footing, the UK chancellor is required to prepare and publish a response and so this will likely provide the first indication of whether we will see any actions within this Parliament," said Jamie Robson, another corporate tax expert at Pinsent Masons.