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Stamp duty on transfer of shares in unquoted companies

David Hadley, member of the LSCA Taxation Committee, looks at how recent legislation will affect stamp duty on transfers between connected companies.

May 2020

Most of us working in practice, including myself, have limited knowledge of stamp duty but it is important that we know enough to recognise when to call in an expert. 

The transfer of shares in unquoted companies is generally a straightforward process. The stock transfer form is completed and is then sent to the Stamp Office for stamping, stamp duty at 0.5% of the consideration paid being payable. 

There is, however, generally no need for the document to be stamped, and thus pay stamp duty, if the consideration is no more than £1,000 and the exemption certificate at the back of the stock transfer form is signed. Other reliefs and exemptions may be available. 

The above has been the case historically even if the shares were transferred to connected companies. However, since last year stamp duty has been calculated, on transfers of listed securities between connected companies, on the market value of the securities transferred. 

The current Finance Bill brings in the new market value rule for transfers of unlisted securities between connected companies, if some or all of the consideration consists of the issue of shares. The legislation will come into place from the date of Royal Assent of the Finance Act.

Fortunately, the legislation is much more focused than was proposed in last year’s consultation document, so it should not catch transactions such as distributions in specie, gifts and contributions not in exchange for shares. It also only applies to transfers between connected companies, so it will not generally apply to, say, transfers to and from employee-benefit trusts.

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