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HMRC internal manual

Stamp Taxes on Shares Manual

HM Revenue & Customs
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Exemptions and reliefs: exemptions: loan capital exemption (Stamp Duty) - general

Loan capital is generally exempt from stamp duty except for loan capital which is in some way equity-related, e.g. convertible into equity or carrying a return related to the profits of a business, unless the return bears an inverse relationship to results. See STSM021220.

FA86/S79 provides a general exemption from stamp duty for transfers of loan capital. The exemption covers

  • the issue or transfer of loan capital in bearer form (sub-section (2)) and
  • transfers of loan capital issued by the Organisation for Economic Co-operation and Development or the Inter-American Development Bank or 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 in sub-sections (5) or (6) (see STSM041060).

Where a transfer on sale of loan capital does not fall within one of the exemptions it is liable to the normal rate of stamp duty for stock and marketable securities, i.e. 0.5% rounded up to the nearest £5 (see STSM013040).

Where there is an issue of existing loan stock which falls within the exemption afforded by Section 79(4), and the issuer (i.e. the debtor) is changed then, provided the other material conditions of the securities (e.g. remaining term to redemption, interest rate, credit security, payment schedule etc) remain unaltered, the loan capital exemption will be preserved. But it is important - if this outcome is to be achieved - that the old loan capital continues to exist (‘albeit decked out in new finery’ as stated by Brightman J in Associated British Maltsters Ltd v IRC (1972) TR53) rather than the change being effected by the creation of new loan stock (however similarly constructed).

There is no restriction on the period of the loan for the purposes of the loan capital exemption. Any short term loan, for whatever period, may qualify for the exemption upon transfer provided it satisfies the other conditions in FA87/S78(7) and FA86/S79.