Collectives: contributions, mergers and other matters: pro rata in specie contribution to an existing unit trust / Open-Ended Investment Company
Where an investor is able to contribute property (including chargeable securities or stock or marketable securities) to an existing unit trust (or an existing sub-fund of an unit trust) in quantities that exactly match the same investments and same quantities already held as investments by the unit trust fund, or is able to proportionately contribute (as practicably as possible), a quantity of each property already held by the fund, such a contribution is regarded as being undertaken on a pro rata in specie basis.
‘Pro rata’ and ‘in specie’ are Latin terms meaning, respectively, ‘in proportion to’ and ‘in the actual form’. Transferring property ‘ pro rata in specie’ means to transfer the ownership of that property from one person/company/entity to another person/company/entity in its current form (i.e. without the need to convert the property to cash), in proportion to the same kind of property already held by the recipient.
For example, if a unit trust fund holds 100 ABC Ltd shares and 200 DEF shares and an investor transferred a further 100 ABC and 200 DEF shares to the fund, the contribution is regarded as pro rata in specie, as it matches the investments already within the fund.
Similarly, if an investor transferred 50 ABC and 100 DEF shares to the fund, the contribution is regarded as pro rata in specie, as it proportionately matches the investments held by the fund.
In this situation, the investor is not relinquishing ownership of his property in return for a different proportionate percentage interest in each of the existing underlying investments (which includes his own contributing property) contained in the fund. There is therefore no transfer on sale, or an agreement to transfer, as the transaction represents, in effect, no change of beneficial ownership (NCBO). Consequently, there are no SDRT (or Stamp Duty) implications.
Open-Ended Investment Company (OEIC)
While there is no liability on a pro rata in specie contribution of securities to an existing unit trust (or an existing sub-fund of an unti trust) as the unit holder retains an undivided interest in the fund investments, there is no comparable exemption where there is a pro rata in specie contribution to a new or existing OEIC or sub-fund of an OEIC (or equivalent OEIC corporate body).
This is because, unlike a trust fund, a corporate body is considered to be the beneficial owner of property that is transferred to it.
In such situations, the investor is relinquishing ownership of his stock or marketable securities in return for a proportionate percentage interest in each of the existing underlying investments (which includes his own contributing shares) held within the OEIC (or sub-fund of the OEIC).
In relinquishing ownership, the contribution of any stock or marketable securities is regarded as being a transfer on sale and chargeable to Stamp Duty on the value of the shares issued in consideration (FA99/SCH13 and FA99/SCH19/PARA1(2)). The issue of OEIC shares as consideration for the contributed property is regarded as ‘stock’ for Stamp Duty charging purposes.
In the absence of a transaction being completed by a formal written document and impressed with Stamp Duty, the contribution of chargeable securities is regarded as an agreement to transfer between the investor and the OEIC (or OEIC sub-fund) fund manager and subject to a FA86/S87 SDRT charge, with the issue of OEIC shares being consideration in money’s worth.
Schedule 19 Finance Act 1999
Where a contribution of property other than cash to a unit trust or OEIC occurs prior to the abolition of FA99/SCH19 on 30 March 2014, the fund manager of the scheme must not include the number of unit/OEIC shares issued as consideration in his monthly SDRT computation for FA99/SCH19 purposes.
See STSM101020 for the meaning of a unit trust.
See STSM101050 for the meaning of an OEIC.
See STSM104080 for information of a SDRT monthly notice.
See STSM103070 for the meaning of a ‘relevant two-week period’.
See STSM021040 for the meaning of ‘stock or marketable securities’.
See STSM031090 for the meaning of ‘chargeable securities’.