Scope of stamp duty on shares: stamp duty: basics of a charge: chargeable consideration: stock or marketable securities
Consideration consisting of stock or marketable securities is valued at the date of the document in accordance with the provisions of SA1891/S6 (1) (b) and SA1891/S55 (1) Stamp Act 1891. For stock or marketable securities given or allotted at a future date, either certainly or contingently, see STSM021110.
Where the consideration for a sale is a security which is not a marketable security (for example a debenture) the amount on which SD is chargeable is the sum of the principal and interest due at the date of the document. SA1891/S55 (2) refers.
HMRC values shares for many purposes, the commonest being for Capital Gains Tax. To ensure a common approach the Capital Gains Tax basis of valuation is used for Stamp Duty purposes. This basis is set out in TCGA92/S272(3).
This defines market value as the price which assets might reasonably be expected to fetch on a sale in the open market. The market value of securities quoted on the London Stock Exchange is the lower of:
- one quarter of the difference between the lower and higher closing prices added to the lower price, or
- halfway between the highest and lowest prices at which the bargains were marked for the relevant date
This principle extends to shares traded on the Alternative Investment Market (AIM) or any other recognised market.
Generally the first of these alternatives is the lower figure and is the basis used. It is commonly known as the “quarter-up value”.
If the shares are not generally traded (e.g. shares in a private company) any recent transactions in those shares at arms’ length, may be taken as indicative of the value of the shares. Otherwise a valuation is agreed between HMRC Stamp Taxes and the applicant. It should be noted that this agreement is made without prejudice to any other transaction or tax liability and is made only in respect of determining the Stamp Duty payable on any particular transaction. This must be made clear when the valuation is accepted. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Where several transfers of shares form part of a single collective transaction (as when one company acquires the whole of the issued share of another), it is considered that the whole allotment of consideration shares should be valued as a single holding, each transfer bearing duty on the appropriate proportion of the total value of the holding, with no discount for minority holdings. The shares issued in a single collective transaction should be valued by reference to the property which is acquired in consideration of their issue. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
This produces a common-sense result, particularly where the consideration shares are issued by a newly formed company whose only assets are the shares acquired.