Stamp Duty Reserve Tax (“SDRT”) on Authorised Investment Funds – net dealing by intermediaries. - Mazars - United Kingdom
Stamp Duty Reserve Tax (“SDRT”) on Authorised Investment Funds – net dealing by intermediaries.
HMRC has announced in its SDRT Customer Newsletter Issue No 10 that it has changed its position in relation to the collection of SDRT under Schedule 19, Finance Act 1999 on ‘net dealing’ by intermediaries or IFAs acting as ‘Nominees’ for holdings in Authorised Investment Funds, where there is a single Nominee Account for a collection of different investors.
How net dealing works
Net dealing occurs when intermediaries net off buy and sell instructions from their clients for each class of units in a fund and therefore only send one buy or sell instruction in a dealing day to the fund manager in respect of that class of unit. For example, if an intermediary buys 60 of one class of unit, and then buys a further 60 units and sells 100 units all of the same class, they would record this as buying 20 units under net dealing and the fund manager would only alter the register of unit holders by that amount.
Under gross dealing this would be recorded as buying 120 and selling 100 and the nominee may have designated accounts for each investor, which means that the fund managers would have to alter the unit holders register for all the trades.
The change of view
Previously, HMRC has taken the view that Fund Managers with units held by a Nominee should themselves account for any SDRT on all relevant transactions by the Nominee whether the Nominee offered gross or net dealing.
Under net dealing, this has proved troublesome for Fund Managers who have either been unaware of relevant transactions or unable to get the necessary information from the Nominee and as such have struggled to report and account for the SDRT charge.
Having taken legal advice, HMRC have come to the conclusion they cannot make such demands of Fund Managers and have now switched the onus for accounting for SDRT where appropriate to the Nominee, as explained below:-
- With effect from 14 July 2009, Fund Managers going through an intermediary should only account for the SDRT charge where the intermediary has provided them with relevant details and instructions. This means that if the Nominee offered gross dealing, the fund manager must bring into account all its buy and sell instructions on a dealing day, but in the case of net dealing, it is only necessary to bring into account the net purchases or sales as noted by the manager.
- In addition to the change in stance on collection of Schedule 19 charges, HMRC have changed their position regarding SDRT charges under s. 87, Finance Act 1986 and net dealing. HMRC have in the past taken the stance that net dealing would in most cases not give rise to a charge under section 87. HMRC now state that net dealing will in many cases give rise to two charges – one to be accounted for by the intermediary and one by the ultimate purchaser of the investment. HMRC have said in the newsletter that they will not pursue any such charges which arose prior to 14 July 2009.
Transition and action required
HMRC will allow IFAs and Intermediaries until 22 September 2009 to amend their systems to take account of the changes stated in the newsletter. They have said that they will not seek to challenge adjustments which are reasonable between 14 July and 22 September so long as artificial arrangements have not been made in order to minimise tax.
Fund Managers and Intermediaries will now have to amend their systems in order to ensure that no more SDRT is charged than necessary in the case of Nominee investors on the other side of the transaction. As above, each case may be different depending on the nature of existing legal arrangements between fund managers the intermediary and the investor, and they would be reviewed on a case by case basis.
The newsletter can be found here.
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