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HMRC internal manual

Stamp Taxes on Shares Manual

Scope of stamp duty on shares: stamp duty: basics of a charge: transfer of loan capital

FA86/S78 (7) Section 78(7) of the Finance Act 1986 defines loan capital as:

  • debenture stock, corporation stock or funded debt by whatever name issued by a body corporate or other body or persons including a partnership (which is an unincorporated body of persons) any local authority or body formed or established in the UK or elsewhere.
  • capital raised by such a body if the capital is borrowed or has the character of borrowed money, and whether it is in the form of stock or any other form.
  • stock or marketable securities issued by the Government of any country or territory outside the UK.

Where a transfer on sale of loan capital does not fall within one of the exemptions listed below it is chargeable with stamp duty at the normal rate for stock and marketable securities.

FA86/S79 provides a general exemption from Stamp Duty (SD) for transfers of loan capital. The exemption extends to

  • the issue or transfer of loan capital in bearer form (sub-section (2))
  • transfers of loan capital issued by

    • the Organisation for Economic Co-operation and Development
    • the Inter-American Development Bank
    • designated international organisations such as the Asian Development bank and the African Development Bank (sub-section (3))
  • all other transfers of loan capital are exempt (sub-section (4) unless they are caught by the provisions sub-sections (5) or (6)
  • loan capital where return bears an inverse relationship to results. (sub-section (7A)
  • capital market instruments where the return may cease or reduce when the issuer has insufficient funds to meet the interest payments that would otherwise be due (sub-section (7B)).

Those exceptions to the exemption are:

  • loan capital that can be converted into ordinary shares, or other securities, or which carries a right to acquire shares or other securities including loan capital of the same description (sub-section (5)).
  • Loan capital which carries a right to interest which exceeds a reasonable commercial return on the nominal amount of the capital (sub-section (6)(a)).
  • Loan capital which carries a right to interest linked to the business results of any company or the value of any property (sub-section (6)(b)) .
  • Loan capital which carries a right on repayment above par and which is not reasonably comparable with what is generally repayable under the terms of issue of loan capital listed on the London Stock Exchange (sub-section (6)(c)).

There are specific exemptions under separate legislation for loan capital issued by the:

  • International Bank of Reconstruction and Development
  • EEC
  • European Coal and Steel Community
  • European Atomic Energy Authority
  • European Investment Bank.