Third time lucky? HMRC publishes consultation on modernisation of stamp taxes on shares and securities

This is not a novel exercise. The latest consultation represents the third attempt to address the shortcomings of UK stamp taxes in seven years. A 2016 Office of Tax Simplification project on possible technical and administrative simplification of stamp duty was followed by a 2020 call for evidence on modernising the overall framework for stamp taxes on shares. The key themes – which also make it into the latest consultation – have typically centred on amalgamating the taxes into a single self-assessment regime, and simplifying the territorial scope of stamp duty.

In particular, the consultation announced yesterday focusses on whether and how to:

• remove the distinction between a tax on electronic transfers (SDRT) and paper instruments (stamp duty) and move to one mandatory transfer tax on securities;
• in respect of the assessment and administration of such a tax, move towards a self-assessment regime with transactions (other than those processed through CREST) to be reported and paid through a new HMRC online portal; and
• refine key elements of any new single securities transfer tax including liability, tax base, geographical scope, the compliance regime and exemptions and reliefs.

It is probably true that the complexities caused by the discrepancies between stamp duty and SDRT are disproportionate to any policy end they can be trying to achieve. For example, each tax has a different base, definition of consideration, and geographical scope. Even within each tax, many of the relevant concepts cause unnecessary complications in practice. As the consultation points out in respect of the geographical scope of stamp duty, it can be “difficult to interpret” and lead to “activity being undertaken outside of the UK or workarounds being used to ensure that non-UK securities don’t fall into scope”.

It is also safe to say that as far as taxes go, stamp taxes on shares enjoy little enthusiastic support. Notable historic proposals for the abolition of stamp duty include the 1990 Budget, and there have been more recent calls to reform SDRT from trade groups and brokers who see it as an obstacle to UK competitiveness. The latest consultation expressly opens with the reflection that stamp duty in particular, as a paper-based regime, “is often regarded as an anachronistic feature of an otherwise high performing UK Tax system”.

The focus of this consultation seems to be on amending rather than abolishing the current regime. This is perhaps unsurprising as stamp taxes are a healthy revenue raiser which are comparatively cheap to collect when compared with other taxes. Nonetheless, it may be the case that after two recent projects examining the same issues, there is now critical momentum to see some meaningful changes to improve the functioning of the stamp taxes framework.