Collectives: contributions, mergers and other matters: fund supermarkets - Stamp Duty Reserve Tax implications
Investors have the availability to place a single on-line order with a fund supermarket to buy and/or sell units in one or more unit trusts or shares in an Open-Ended Investment Company (OEIC).
Due to this the fund supermarket will generally provide each respective fund manager on a typically daily/weekly basis (in accordance with the terms of the fund supermarket) with either:
- A separate gross instruction to buy or sell units/OEIC shares per each client instruction; or
- A single instruction to buy an aggregated total number of units/OEIC shares (on behalf of two or more investors) and a single instruction representing an aggregated total number of units/OEIC shares to be surrendered on behalf of various unit or OEIC shareholders.
In either situation, a manager of the relevant unit trust or OEIC is required to include each gross, or aggregated, buy and sell instruction received from a fund supermarket prior to 30 March 2014 in his monthly computation of Stamp Duty Reserve Tax (SDRT) liability under FA99/SCH19.
Net dealing by a fund supermarket
While units and OEIC shares purchased by a fund supermarket directly from unit trusts and OEICS are held in the legal name of the fund supermarket (or its nominee) on behalf of the beneficial unit/share holders, the terms of the fund supermarket may permit it to effectively net buy and sell investor instructions in a specific unit trust or OEIC.
This can result in a single ‘net’ buy or sell instruction being sent by the supermarket to an underlying fund manager (or, indeed, no net instruction being sent where the total quantity of units/OEIC shares purchased equates to the total quantity of units/OEIC shares sold i.e. surrendered, during the same period).
Where netting is undertaken, this can gice rise to various stamp taxes implications as outlined below.
For example, a fund supermarket holds, as legal owner, 10,000 units in the ABC unit trust fund on behalf of unit holder A valued at £10,000. Investor B places an on-line instruction with the fund supermarket to purchase 12,000 units in the ABC fund for £12,000 consideration. On the same day, unit holder A gives instruction to sell/surrender his interest in all 10,000 units.
The fund supermarket decides to off-set/net the respective 10,000 units to be surrendered with 12,000 units to be purchased, by placing a single instruction to the fund manager of the ABC trust fund to purchase 2,000 further units for £2,000. Investor B is subsequently informed that the fund supermarket is holding 12,000 units on his behalf and unit holder A is advised that his account has been credited with £10,000.
SDRT Implications - FA99/SCH19 (units surrendered prior to 30 March 2014
While in the example above the fund supermarket has effectively netted units that are surrendered and purchased, provided the fund supermarket also separately sends the ABC fund manager instructions of the gross 10,000 units surrendered and gross 12,000 units to be purchased, no FA86/S87 SDRT charge will arise.
On receipt of the gross instructions, the ABC fund manager will include the gross 10,000 and 12,000 units respectively in his monthly FA99/SCH19 SDRT computation.
However, where the fund supermarket undertakes netting and the ABC fund manager is only instructed by the fund supermarket to include 2,000 units issued in his monthly computation of SDRT, this can, dependent on the individual circumstances, give rise to two further principal FA86/S87 SDRT charges (in addition to the 2,000 purchased units notified to the fund manager for FA99/SCH19 purposes):
1. An SDRT charge (FA86/S87) on an agreement to transfer 10,000 units from unit holder A to the fund supermarket for £10,000 consideration, and
2. An SDRT charge (FA86/S87) on the subsequent agreement to transfer the same 10,000 registered units from the fund supermarket to investor B for £10,000 consideration.
SDRT implications – units surrendered on or after 30 March 2014
Where the fund supermarket undertakes netting, provided it also separately notifies the fund manager of the gross 10,000 units to be surrendered and 12,000 units to be purchased respectively, no FA86/S87 SDRT charge will arise due to the FA86/S90(1) exemption.
However, if ABC fund manager is only instructed by the fund supermarket to purchase 2,000 further units, two principal FA86/S87 SDRT charges may, dependent on the circumstances, arise:
1. On the agreement to transfer 10,000 units from unit holder A to the fund supermarket for £10,000 consideration, and
2. On the agreement to transfer 10,000 registered units from the fund supermarket to investor B for £10,000 consideration.
See STSM101030 for the meaning of an AUT.
See STSM101050 for the meaning of an OEIC.
See STSM107110 for the meaning of a fund supermarket.
See STSM103005 for information on the abolition of FA99/SCH19