Stamp Taxes - Customer Newsletter - Stamp Duty Reserve Tax (SDRT)

Issue no.6 Unit Trust/OEIC Monthly Notices - Negative Issue/Surrender Values - February 2004

Subject: Cancelled/altered deals resulting in a negative quantity of issues and/or surrenders

Background

On 1 September 1999, Stamp Taxes published initial guidance material in relation to the Stamp Duty Reserve Tax regime for surrenders of units in unit trust schemes and shares in open-ended investment companies (OEICs). Paragraphs 23 and 24 of the guidance afforded unit trust managers/OEIC Authorised Corporate Directors two methods of accounting for cancelled/altered deals, as follows:-

(a) cancelled and altered deals may be included as amendments to issues and surrenders - whichever is applicable - in the charging period and relevant two-week period in which they occur, provided this is done on a consistent basis;

(b) alternatively, a full re-computation can be carried out, again provided this is done on a consistent basis.

The internal systems operated by some funds employ a third method whereby a cancelled issue or surrender is reported by inputting a contra transaction to reverse the trade, for example a cancelled issue is reversed by inputting a surrender in a later period. This method does not give rise to the particular difficulties that the rest of this Newsletter seeks to address.

Where, however, a fund accounts for cancelled or altered deals in accordance with option (a) above, it can happen that a negative figure for issues and/or surrenders results. The application of the I/S formula may, as a consequence, sometimes produce a negative "SDRT due" figure. Fund managers have been treating this outcome in different ways. Some have simply set the negative amount off against SDRT liability arising in another week. Others have made a claim for repayment, sometimes even in circumstances where SDRT has not been paid in the first place.

In order to eliminate this uncertainty and ensure consistent treatment, Stamp Taxes now issues the following guidance to customers who choose option (a):-

(i) where, by including cancelled and altered deals in the period in which they occur, a cumulative negative figure representing issues or surrenders in the charging period and relevant two-week period results, the cumulative net negative figure should be treated as zero;

(ii) excess cancelled/altered issues over the actual number of issues in the charging period are to be carried forward and offset against the number of actual issues in the next charging period;

(iii) similarly, where a cumulative positive figure of surrenders in the charging period and relevant two-week period results, but the value of surrenders in the charging period itself is negative, the negative value should be treated as nil for the purposes of the SDRT calculation;

(iv) excess cancelled/altered surrenders over the actual number of surrenders in the charging period are to be carried forward and offset against the number of actual surrenders in the next charging period;

As an alternative, a fund may, of course, still choose option (b) and carry out a full re-computation - provided this is done on a consistent basis.

Where option (a) is chosen, it will therefore be necessary for monthly notices to include additional information to show the net cumulative quantity of excess issues or surrenders brought and carried forward. Annexes A and B provide examples of net negative excess calculations. Both assume that all fund assets are non-exempt investments with no pro-rata or non-pro rata redemptions in specie or exempt third party declarations.

This practice will take effect for all notices still open at 14 February 2004 and to all those newly submitted after that date. All enquiries about this Newsletter should be addressed to:

Stamp Taxes
SDRT Operations Unit,
Room 5, East Block
Barrington Road,
Worthing,
West Sussex
BN12 4SE

Telephone : 01903 509469 or 01903 509471

Please note change of address

From 17 November 2006, all enquiries should be sent to:
Birmingham Stamp Office
SDRT Team
9th Floor
City Centre House
30 Union Street
Birmingham
B2 4AR

Tel: 0845 603 0135
Fax: 0121 633 3921

Annex A

Data required for monthly SDRT computation

Week 1 Week 2 Week 3 Week 4 Week 5   Value Value Value Value Value   No.of units £ No.of units £ No.of Units £ No.of units £ No.of units £ Issues           W 400,000 100,000 30,000 45,000 5 B/f net negative excess 0 0 0 0 0 W + 1 100,000 30,000 45,000 5 0 C/f net negative excess 0 0 0 0 0 Total (I) 500,000 130,000 75,000 45,005 5             Surrenders           W 0 10,000 10,000 100,000 100,000 -20,000 0 -100,000 0 B/f net negative excess 0 0 0 0 -20,000 W + 1 10,000 100,000 -20,000 -100,000 0 C/f net negative excess 0 0 0 20,000 120,000 Total (S) 10,000 110,000 80,000 0 0             If S>I           I/S x value of W surrenders 0 0 93,750 0 0             SDRT due at 0.5% 0.00 50.00 468.75 0.00 0.00                     Total SDRT for Month =£518.75

Annex B

Week 6 Week 7 Week 8 Week 9 Week 10   Value Value Value Value Value   No. of units £ No.of units £ No. of Units £ No.of units £ No. of units £ Issues           W 0 100,000 -150,000 250,000 50,000 B/f net negative excess 0 0 0 -150,000 0 W + 1 100,000 -150,000 250,000 50,000 100,000 C/f net negative excess 0 0 150,000 0 0 Total (I) 100,000 0 100,000 150,000 150,000             Surrenders           W 0 0 75,000 (1) 0 75,000 (2) 30,000 50,000 50,000 15,000 15,000 B/f net negative excess -120,000 -120,000 -45,000 0 0 w + 1 75,000 75,000 50,000 15,000 35,000 C/f net negative excess 120,000 45,000 0 0 0 Total (S) 75,000 30,000 80,000 65,000 50,000             If S>I 0 0 18,750 0 0 I/S x value of w surrenders                       SDRT due at 0.5% 0.00 0.00 150.00 250.00 75.00                     Total SDRT for month =£475.00

Notes

(1) The value of surrenders in charging period week 7 is reduced from £75,000 to nil as the figure of excess surrenders brought forward is set against the figure of actual surrenders in that week.

(2) The value of surrenders in charging period week 8 is reduced from £75,000 to £30,000 as the figure of excess surrenders brought forward is set against the figure of actual surrenders in that week.