In this chapter we look at stamp taxes.
Stamp duty is a charge on transfers of shares and securities by stock transfer
form of 0.5% of the consideration for the sale.
The same rate of duty applies for stamp duty reserve tax which applies where
shares and securities are transferred in a paperless transaction.
Stamp duty land tax is charged on transfers of land in England, Wales and
Northern Ireland. There are different rates for residential property and nonresidential property and also different methods of calculating the tax.
In the next chapter, we will turn our attention to corporation tax
|5||Stamp taxes (stamp duty, stamp duty reserve tax and stamp duty land tax)|
|(a)||The scope of stamp taxes:||3|
|(i)||Identify the property in respect of which stamp taxes are payable.|
|(b)||Identify and advise on the liabilities arising on transfers.||3|
|(i)||Advise on the stamp taxes payable on transfers of shares and securities|
|(ii)||Advise on the stamp taxes payable on transfers of land|
|(c)||The use of exemptions and reliefs in deferring and minimising stamp taxes:||3|
|(i)||Identify transfers involving no consideration|
|(ii)||Advise on group transactions|
|(d)||Understand and explain the systems by which stamp taxes are administered.||2|
Stamp taxes are unlikely to form a major part of a question, but must not be overlooked as they can be a significant cost in many transactions.
The topics in this chapter are new.
1 Stamp duty 6/13
|Stamp duty applies to transfers of shares and securities transferred by a stock transfer form.|
Two of the competencies you require to fulfil Performance Objective 15 Tax computations and assessments of the PER are to prepare or contribute to the computation or assessment of tax computations for individuals and to prepare or contribute to the computation or assessment of tax computations for single companies, groups or other entities. You can apply the knowledge you obtain from this section of the text to help to demonstrate these competences.
Stamp duty applies to transfers of shares and securities which are effected by a paper stock transfer form. It is payable by the purchaser.
Stamp duty applies at the rate of 0.5% of the consideration unless the transfer falls within one of the specific exemptions (see Section 4). The duty is rounded up to the nearest £5.
2 Stamp duty reserve tax (SDRT)
Stamp duty reserve tax (SDRT) applies to electronic transfers of shares and securities.
Stamp duty reserve tax (SDRT) is applicable to transfers of shares and securities which are effected by an electronic paperless transaction. It is payable by the purchaser.
Most of these transactions are made through an electronic system called CREST. Some shares are held outside CREST (‘Off Market’) but may still be transferred electronically, for example if they are held by a nominee such as a bank.
SDRT applies at the rate of 0.5% of the consideration unless the transfer falls within one of the specific exemptions (see Section 4).
3 Stamp duty land tax (SDLT) 6/12
3.1 Land transactions
Stamp duty land tax (SDLT) applies to land transactions in England, Wales and Northern Ireland.
|There is a similar tax called Land and Buildings Transaction Tax (LBTT) on land transactions in Scotland. LBTT is excluded from the P6(UK) syllabus.|
Exam focus point
A land transaction is a transfer of land or an interest in, or right over, land. SDLT is generally payable based on the consideration for the land transaction. It is payable by the purchaser. The amount of the charge to SDLT depends on whether the land is residential (eg houses, flats) or non-residential (eg shops, warehouses, factories). Exam focus The charge to stamp duty land tax on leases is outside the scope of the P6 (UK) syllabus.
3.2 Residential property New
The following rates of SDLT apply to residential property:
|Up to £125,000||0|
|£125,001 – £250,000||2|
|£250,001 – £925,000||5|
|£925,001 – £1,500,000||10|
|£1,500,001 and above||12|
Each rate applies to the consideration between the thresholds up to £1,500,000. Consideration in excess of £1,500,000 is taxable at 12%. This method of calculating tax is therefore similar to that used for income tax.
3.3 Examples: residential property
- Beryl buys a freehold house in Northern Ireland in January 2016 for £110,000. Her stamp duty land tax is £110,000 × 0% = £0.
- Sandy buys a freehold house in Wales in December 2015 for £450,000. His stamp duty land tax is calculated as follows:
£125,000 0% 0
£125,000 (£250,000 – 125,000) 2% 2,500
£200,000 (£450,000 – 250,000) 5% 10,000
- Joanna buys a freehold house in England in August 2015 for £1,650,000. Her stamp duty land tax is calculated as follows:
£125,000 0% 0
£125,000 (£250,000 – 125,000) 2% 2,500 £675,000 (£925,000 – 250,000) 5% 33,750
£575,000 (£1,500,000 – 925,000) 10% 57,500 £150,000 (£1,650,000 – 1,500,000) 12% 18,000
|Anti-avoidance legislation applies in respect of certain acquisitions of high-value residential property by persons that are not individuals, for example, companies. These rules are not examinable in Paper P6 (UK).|
Exam focus point
3.4 Non-residential property
The following rates of SDLT apply to non-residential property:
|Up to £150,000||Nil|
|£150,001 – £250,000||1|
|£250,001 – £500,000||3|
|£500,001 and above||4|
For non-residential property the rate of SDLT applies to the whole of the consideration, not just that above the relevant threshold. If value added tax (VAT) is chargeable on the transaction (see later in this text), SDLT is chargeable on the VAT-inclusive amount.
3.5 Examples: non-residential property
- Raymond buys a freehold shop in Wales in November 2015 for £145,000. His stamp duty land tax is nil because the consideration is below the threshold of £150,000.
- K plc buys a freehold factory in Northern Ireland in August 2015 for £350,000. Its stamp duty land tax is £350,000 × 3% = £10,500.
- S Ltd buys a freehold warehouse in England in February 2016 for £1,500,000. Its stamp duty land tax is £1,500,000 × 4% = £60,000.
Exam focus The thresholds and rates of stamp duty land tax for both residential and non-residential property will be point provided in the tax rates and allowances in the exam.
4 Exemptions and reliefs relating to stamp taxes
FAST FORWARD There are exemptions and reliefs for stamp taxes, for example on transfers of securities traded on growth markets, when the transfer does not involve payment of consideration, such as a gift, and on transfers between group companies.
4.1 Transfers of securities traded on a recognised growth market
Stamp duty and stamp duty reserve tax is not chargeable on transfers of securities (eg shares) which are traded on a recognised growth market such as the AIM sub-market of the London Stock Exchange.
4.2 Transfers with no consideration 6/11, 6/12, 6/13
Stamp taxes are charged on the consideration passing under the document or transaction. If there is no consideration, there is an exemption from stamp taxes. Examples include:
- Gifts (except a gift of land to a connected company)
- A transfer on divorce, annulment of marriage or judicial separation
- Variations of a will or intestacy made within 2 years of death for no consideration Transfers to charities if the shares or land is to be used for charitable purposes
If land is transferred to a company, for example on incorporation, SDLT is payable on the market value of land.
4.3 Company transactions 6/15
Relief from stamp duty and SDLT is given for transfers of assets between companies within a stamp taxes group. There is no direct relief for stamp duty reserve tax so the transaction must be made by using a stock transfer form and a claim made for stamp duty relief.
There are two conditions which must be met to attract the relief, namely that:
- Effect must be to transfer the beneficial interest in property from one company to another, and
- One company must be the parent of the other company or both companies must have a common parent company.
One company is regarded as the parent of another if:
- The company has beneficial ownership of at least 75% of the ordinary share capital, ie if all the issued share capital of a company, other than fixed rate preference shares, and
- The company has at least a 75% interest in dividends and assets in a winding up, and
- There are no ‘arrangements’ for a non-group person to acquire control of the transferee company but not the transferor company.
For indirect holdings, it is necessary to reduce the degree of ownership at each level to the appropriate fraction in determining whether the 75% test is met (as for corporation tax group relief).
Allegri Ltd owns 90% of the ordinary share capital of Byrd Ltd, which in turn owns 85% of the ordinary share capital of Corelli Ltd. Shares are transferred from Corelli Ltd to Allegri Ltd under an instrument executed on 1 June 2015. Is stamp duty relief available?
Relief is available, since Allegri Ltd owns indirectly 76½ % (ie 90% x 85%) of the ordinary share capital of Corelli Ltd.
SDLT relief is withdrawn where land has been transferred from one group company to another and within three years of the transfer the transferee company leaves the group whilst still owning the land. Note that the transferor company leaving the group does not cause the SDLT relief to be withdrawn as the land is still held by the transferee company and so it is still within the group.
|Stamp duty land tax on groups was tested in June 2015 Question 2(a) Helm Ltd group. The examiner commented that ‘the stamp duty land tax aspects of the question were not handled well with very few candidates recognising that the inter group exemption that was available when the trade and assets of Aero Ltd were transferred to Bar Ltd would be withdrawn due to the sale of Bar Ltd within three years.’|
Exam focus point
5 Administration of stamp taxes
5.1 Stamp duty
Stamp duty is collected when the stampable document is sent for stamping to HMRC (Stamp Taxes).
Documents which are chargeable to stamp duty must be sent to HMRC (Stamp Taxes) with the duty payable. The document is then impressed with a duty stamp showing the duty paid and the date of payment.
To be certain that the correct amount of duty has been paid the taxpayer may request that the document is adjudicated, in which case HMRC will examine the underlying facts and determine the duty payable. This is most commonly used where the value of the consideration needs to be ascertained, and must be used in certain cases, such as for intra-group transfers.
Documents must be presented for stamping within 30 days of execution. Interest runs from this date until the document is stamped, and a late filing penalty may be charged. Unstamped documents are not admissible as evidence.
5.2 Stamp duty reserve tax
Stamp duty reserve tax is collected automatically when a transaction is made through CREST.
Stamp duty reserve tax is collected automatically when a transaction is made using CREST.
If an off market transaction is dealt with by a stockbroker, the stockbroker will pay the SDRT direct to HMRC. Otherwise, the purchaser must both report the transaction and pay the tax to HMRC by the seventh of the month following the month in which the transaction is made.
The charge to SDRT is cancelled if, within 6 years after the contract date, a duly stamped transfer is produced to HMRC.
5.3 Stamp duty land tax
Stamp duty land tax is collected under a self assessment system.
SDLT is payable within 30 days of the transaction. Interest is charged on late paid tax.
If a land transaction takes place which is not exempt, a land transaction return must be filed with HMRC (Stamp Taxes) within 30 days of the transaction. There are late filing penalties of £100 if the return is less than 3 months late, or £200 otherwise. HMRC can apply to the Tax Tribunal for a daily penalty, and the penalty is tax geared if the return is over 12 months late.
The taxpayer may amend the return within 12 months of the filing date, and HMRC may amend the return to correct obvious errors within 9 months of the actual filing date.
HMRC may carry out a compliance check into the return within 9 months of the later of the due and actual filing dates. On completion of the compliance check, HMRC must issue a closure notice stating its conclusions and making any necessary amendments to the return. If no return is filed HMRC may issue a determination of the tax due. HMRC also has power to raise a discovery assessment.
Land transactions cannot be registered with the Land Registry unless accompanied by a certificate from HMRC that stamp duty land tax has been paid or by a self-certificate by the taxpayer that no stamp duty land tax is payable.
|||Stamp duty applies to transfers of shares and securities transferred by a stock transfer form.|
|||Stamp duty reserve tax (SDRT) applies to electronic transfers of shares and securities.|
|||Stamp duty land tax (SDLT) applies to the sale of land, or of rights over land, in England, Wales and Northern Ireland. There are different rates and methods of calculating the tax for residential property and non-residential property.|
|||There are exemptions and reliefs for stamp taxes, for example on transfers of securities traded on growth markets, when the transfer does not involve payment of consideration, such as a gift, and on transfers between group companies.|
|||Stamp duty is collected when the stampable document is sent for stamping to HMRC (Stamp Taxes).|
|||Stamp duty reserve tax is collected automatically when a transaction is made through CREST.|
|||Stamp duty land tax is collected under a self assessment system.|
- What is the stamp duty on a share transfer form if the consideration for sale was £50,000?
- When is stamp duty reserve tax charged and how is it usually collected?
- In November 2015, Brianna buys a freehold residential property in England for £260,000. What is the SDLT payable?
- In October 2015, W Ltd buys a freehold non-residential property for £800,000. What is the SDLT payable?
Answers to quick quiz
- £50,000 5% = £250
- Stamp duty reserve tax (SDRT) applies to electronic share transactions and is usually collected automatically when a transaction is made.
£125,000 0% 0
£125,000 (£250,000 – 125,000) 2% 2,500
£10,000 (£260,000 – 250,000) 5% 500
4 £800,000 × 4% = £32,000