Share Incentive Plan

Frequently Asked Questions - Stamp Duty

Contents

Q. Does Stamp Duty apply when a company sets up a trust for the purposes of the Share Incentive Plan?

A. Setting up a trust for the purposes of the Share Incentive Plan may attract a fixed Stamp Duty charge of £5. The deed will need to be stamped if the trust fund contains stock or marketable securities at the time of its execution. If at the time of its execution the trust fund only contains cash, the deed will not need to be stamped. It will be the responsibility of the company to decide whether or not the deed needs to be stamped in order to make it a legally enforceable document.

Q. What is the Stamp Duty position when a trust buys shares on the open market?

A. When trustees buy shares they are treated in the same way as any other purchaser. Stamp Duty or Stamp Duty Reserve Tax (SDRT) will apply to the transaction.

Q. Does Stamp Duty apply where a company issues shares to the trust?

A. No. Neither Stamp Duty nor SDRT generally apply to new share issues.

Q. What is the Stamp Duty position if shares are transferred from one employee share plan to another or between trustees of one share plan to another?

A. If there is consideration for the transfer there will be a charge to Stamp Duty or SDRT.

Q. Is there a Stamp Duty or SDRT charge when a trust awards free shares to an employee?

A. There is no Stamp Duty or SDRT charge when free shares are awarded. If a document is used to award the free shares, it should be accompanied by a statement certifying that the document is exempt under Category L of the Stamp Duty (Exempt Instruments) Regulations 1987.

Q. Is there a Stamp Duty or SDRT charge when a trust awards matching shares to an employee?

A. There is no Stamp Duty or SDRT charge when matching shares are awarded. If a document is used to award the free shares, it should be accompanied by a statement certifying that the document is exempt under Category L of the Stamp Duty (Exempt Instruments) Regulations 1987.

Q. Is there a Stamp Duty or SDRT charge when a trust acquires partnership shares on behalf of an employee? (Also see 'What is the Stamp Duty position if an employee reinvests cash dividends in order to acquire "dividend shares" under Schedule 2 ITEPA?')

There are a number of ways in which the trustee may acquire partnership shares on behalf of employees, and the Stamp Duty or SDRT position will depend on the arrangements in each individual case.

For example, the trustee may make arrangements for partnership share money to be used to acquire shares on behalf of employees on the acquisition date. In this case, a Stamp Duty or SDRT charge will arise, as the trustee is purchasing shares on behalf of the employee.

If the trustee acquires shares and then subsequently awards them to employees on the acquisition date, there will be a Stamp Duty or SDRT charge when the trustee acquires the shares (as set out above in 'What is the Stamp Duty position when a trust buys shares on the open market?').

Alternatively, if the trustee and the company agree that new shares will be issued on the acquisition date in return for the partnership share money there will generally be no charge to Stamp Duty or SDRT (as set out above in 'Does Stamp Duty apply where a company issues shares to the trust?').

These examples cover some but not all of the ways in which trustees may acquire shares on behalf of employees as partnership shares. But the same principles will apply however the shares are acquired - generally no Stamp Duty or SDRT where shares are issued; Stamp Duty or SDRT where shares are transferred for consideration with exemption since Finance Act 2001 of any transfer from the trustee's holding on behalf of employees in general to a holding in the beneficial ownership of an employee when shares are awarded.

Q. What happens when an employee removes his or her shares from the trust?

A. There is no Stamp Duty or SDRT charge when employees remove their shares from the trust. The transfer can be certified exempt under Category F of the Stamp Duty (Exempt Instruments) Regulations 1987.

Q. What is the Stamp Duty position if an employee sells shares?

A. The sale of shares will result in a Stamp Duty or SDRT charge on the sale price. It is normal for this liability to be met by the purchaser of the shares.

Q. Does Stamp Duty or SDRT apply if the employee sells shares back to the trust?

A. Yes. Stamp Duty or SDRT will apply to the sale in the same way as it would to any sale to a third party.

Q. Does Stamp Duty or SDRT apply if the employee's plan shares are forfeit?

A. There is no Stamp Duty or SDRT charge when shares are forfeited.

Q. What is the Stamp Duty position if an employee reinvests cash dividends in order to acquire "dividend shares" under Schedule 2 ITEPA?

A. The same principles apply for dividend shares as for partnership shares. See 'Is there a Stamp Duty or SDRT charge when a trust acquires partnership shares on behalf of an employee?'

Q. Is there any Stamp Duty liability at the end of the 5-year holding period?

A. No. The end of the 5-year period has no Stamp Duty or SDRT consequences.