30 March, 2016
The current process surrounding share transfers can be a drawn out process with delays occurring between the purchaser purchasing the shares and them becoming the legal owner to those shares. This is as a result of requirements relating to the stock transfer form being stamped by HMRCs stamp office, when stamp duty is payable, and then being returned to the company before the purchaser can be registered as the legal owner of the shares. The process of the stock transfer form being stamped by the stamp office should only take around 10 working days in total however, it is not unknown for this to take longer. During the whole time between completion and registration of the transfer the purchaser is only the beneficial owner of such shares. However, an alternative procedure has been suggested which should hopefully streamline the whole process and remove unnecessary delays.
The alternative process sees the parties entering in to a Share Purchase Agreement for the beneficial interest in the shares only at the same time as a declaration of trust, which will transfer the beneficial interest in the shares to the purchaser immediately upon completion, in consideration for the purchase price of the shares. This then gives the purchaser the ability, as beneficial owner of the shares, to require the seller to transfer the legal title of the shares to the purchaser, for nil consideration. Therefore, when the stock transfer form is completed, for nil consideration, no stamp duty will be payable and the executed stock transfer form can be sent to the company and the purchaser registered as the legal owner of the shares all on the day of completion, without any delay. The matter of stamp duty can then be addressed by sending the executed declaration of trust to the stamp office within 30 days.
Consideration must be had for the position of stamp duty surrounding the alternative procedure set out above in order to avoid double charges. Given that there will be two instruments of transfer under the alternative process; one being the SPA and the other the declaration of trust, it is for the parties to determine which instrument should be submitted to the stamp office. Companies should choose to send the declaration of trust to the stamp office as the 'principal instrument' of transfer, as opposed to the SPA. The reason for this is because the declaration of trust is an instrument of transfer and therefore will not be chargeable to stamp duty reserve tax (SDRT); it will only be chargeable to stamp duty (which will be chargeable at the same rate which would have been charged under the traditional share transfer procedure, being 0.5% of the consideration). Whereas, submitting the SPA as the instrument of transfer would see the transaction be subject to stamp duty and SDRT. Therefore, providing the declaration of trust as the transfer instrument for stamping removes any liability of stamp duty and SDRT under the SPA.
It should be noted that the alternative process should not be used as a means of reducing or otherwise deferring liability to pay stamp duty on a share transfer but merely a way of allowing a purchaser to become the legal owner to the shares without any unnecessary delays after completion of a transaction.
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