SDRT Customer Newsletter Issue No 10

July 2009

Stamp Duty Reserve Tax (SDRT) on collective investment schemes - net dealing by intermediaries

['Intermediaries' here is used in its everyday sense and not in the technical sense set out in the Stamp Duty and SDRT legislation providing relief for intermediaries.]

Investors in collective investment schemes often make their investment through an intermediary. Intermediaries may deal with underlying fund managers by sending aggregated sell and aggregated buy instructions separately (known as 'gross dealing'); or, intermediaries may net off buy and sell instructions for each fund and thus send only one net buy or sell instruction to each underlying fund manager (known as 'net dealing').

HM Revenue & Customs (HMRC) has historically taken the view that where net dealing occurs, the underlying fund managers should obtain gross transaction information from the intermediary and include that information in calculating their SDRT liability under Schedule 19 Finance Act 1999 ('Schedule 19').

Following representations, HMRC has taken legal advice and, as a result, announces a change of view with effect from 14 July 2009. In future, underlying fund managers should only include in their Schedule 19 calculations transactions for which they have received instructions.

Furthermore, HMRC previously took the view that net dealing would not generally give rise to any principal SDRT charges under section 87 Finance Act 1986. HMRC also announce a change in this position. HMRC advice is that net dealing will generally, depending on the facts of each case, give rise to two principal SDRT charges in respect of the transactions which have been netted off – one on the intermediary and one on the ultimate purchaser of the investment. HMRC will not pursue any such charges that arose on or before the date of this announcement.

HMRC accepts that it could take several weeks for firms to adjust to this revised approach. So long as steps are taken to make any adjustments as quickly as reasonably possible (and in any event by 22 September 2009), and provided there is no suggestion that the handling of the change is being exploited to minimise tax, HMRC will not seek to challenge the transitional arrangements adopted.

HMRC will monitor the situation following this announcement to ensure that the rules apply fairly and will take action against any attempt to exploit this change of view to minimise tax liabilities artificially.

HMRC understands that some fund managers have entered into arrangements with clearance services. Under these arrangements, fund managers may be accounting, through their Schedule 19 calculation, for SDRT which is strictly a liability of the clearance service. HMRC considers that these arrangements are unaffected by this announcement.

Any queries relating to this announcement should be made to the HMRC Stamp Taxes policy/technical team (telephone: 020 7147 2788, email: Jeremy Schryber).