Collectives: Third party matters: Third Party units/OEIC shares surrendered to a fund manager
There are occasions whereby a holder of units in a unit trust or shares in an Open-Ended Investment Company (OEIC) agrees to sell and transfer his units/OEIC shares to a third party purchaser for consideration in money or money’s worth.
In this situation, it may be necessary, however, for the agreed transaction to be notified to the relevant fund manager of the unit trust or OEIC. This is to enable the register (which is maintained by a fund manager recording the number of units/OEIC issued and names of all holders) to be amended and updated to reflect the change of both the legal and beneficial ownership of the units/OEIC shares following the transfer on sale.
Agreement to sell units/OEIC shares occurs prior to 30 March 2014
The notification to a fund manager will count as both a surrender of units/OEIC shares by the holder and a corresponding issue of units or OEIC shares by the relevant fund for the purposes of a charge to stamp duty reserve tax (SDRT) under FA99/SCH19. The surrender and issue will be eligible to benefit from the available SDRT reducing fractions where:-
a) The total number of surrenders during a ‘relevant two-week period’ exceed the total number of issued units/OEIC shares in the corresponding period (FA99/SCH19/PARA4); and
b) The relevant fund contains exempt investments (FA99/SCH19/PARA5)
For the purposes of FA99/SCH19, the third party surrender and issue are considered to ‘occur’ on the day that the unit/OEIC register or other records are changed to reflect the transfer made, as it is not until then that the fund manager can be said to have accepted the transfer. This approach differs from the position for other surrenders where the manager is a party to a deal with the surrendering unit/OEIC share holder.
The value of the surrendered unit/OEIC share for the purposes of FA99/SCH19 is not directly related to the amount of any consideration actually paid between the purchaser and seller of the unit/OEIC share. Rather, the value is to be determined by a fund manager by reference to the market value of the unit/OEIC share at the time when the register is amended.
Any payment in respect of SDRT in connection with the transfer will depend on this figure. In recognition of this, it is acceptable to HM Revenue & Customs (HMRC) for the value to be taken as the redemption price at the time the unit/OEIC shareholder sends the instruction authorising the fund manager or trustee to register or otherwise record the transfer; provided this is undertaken consistently and promptly thereafter.
Agreement to sell units/OEIC shares occurs on or after 30 March 2014
The SDRT FA99 Schedule 19 charge on surrenders and transfers of units was abolished with effect from 30 March 2014 (FA2014/S114(1)). Where units or OEIC shares are agreed to be transferred on sale and the fund is notified of the transaction in order to enable the unit or share register to be updated to reflect the new purchaser, there is no SDRT charge under FA99/SCH19 (or FA86/S87 by virtue of FA86/S90(1)).
A SDRT charge can, nevertheless, arise under FA86/S87 where there is an agreement to transfer units/OEIC shares on sale which does not require an update in the fund’s unit/share register and so the transaction does not need to be notified to the fund manager. STSM106020 provides more information.
See STSM101020 for the meaning of a unit trust.
See STSM101050 for the meaning of an OEIC.
See STSM104020 for details on how a charge to SDRT can be reduced where the total number of units/OEIC shares surrendered during a ‘two-week period’, exceed the total number of units/OEIC shares issued in the corresponding period.
See STSM103070 for the meaning of a ‘relevant two-week period’.