On 8 April 2024 HMRC issued further guidance to the Stamp Taxes on Shares manual (the “Manual”) on what constitutes a “capital-raising arrangement” qualifying for exemption from a 1.5% stamp duty and stamp duty reserve tax (“SDRT”) charge.[1]
To briefly recap, under the provisions of Finance Act 2024, from 1 January 2024 no 1.5% charge will arise on “exempt capital raising transfers” (in the context of SDRT) or “exempt capital raising instruments” (in the context of stamp duty). A transfer of chargeable securities is an exempt capital-raising transfer if the transfer is in the course of capital-raising arrangements. An exempt capital-raising instrument is an instrument which transfers relevant securities in the course of capital-raising arrangements.
The definition of a “capital-raising arrangement” is therefore critical to the new exemptions in Finance Act 2024. Capital-raising arrangements are arrangements under which chargeable securities are issued by a company for the purpose of raising new capital.
The further guidance by HM Revenue & Customs (“HMRC”) was added to paragraph STSM053100[2] of the Manual which confirms that an issue of chargeable securities is not prevented from being capital raising by any of the following:
- if no consideration is provided (for example, if the issue is a bonus issue);
- if the consideration provided is non-cash consideration (for example, if the consideration is in the form of assets); and
- if consideration is provided, but it is directly received by another party (for example, if the consideration is given to a subsidiary of the issuer).
The Manual provides a non-exhaustive list of practical examples of what HMRC consider to be arrangements pursuant to which chargeable securities may be issued by a company for the purpose of raising new capital. The guidance outlines that for a transfer to be “in the course of” a capital-raising arrangement, it would be expected that the transfer was “linked to the capital-raising arrangement and was contemporaneous with the issue of securities.” [3] HMRC have stated in the Manual that they consider that a transfer within four months of the relevant issue of securities would be sufficiently contemporaneous.
[1] BrassTax article outlining the change: Tax Abolition (but of a tax not actively collected).
[2] https://www.gov.uk/hmrc-internal-manuals/stamp-taxes-shares-manual/stsm053100.
[3] https://www.gov.uk/hmrc-internal-manuals/stamp-taxes-shares-manual/stsm053100, at paragraph 4.
