CLAUSE 93: MERGERS OF AUTHORISED UNIT TRUSTS

INTRODUCTION

1. This Clause temporarily exempts from stamp duty mergers between authorised unit trusts (AUTs). The exemption will run from Royal Assent to 30 June 1999.

2. The Economic Secretary to the Treasury, Mrs Angela Knight MP, announced in May last year that legislation would be introduced in the 1997 Finance Bill to exempt from stamp duty and stamp duty reserve tax (SDRT) mergers between two or more AUTs, if carried out within a period of some two years after the Bill becomes law.

3. The Government's reason for introducing this exemption is to provide an opportunity for rationalisation of the unit trust industry, alongside the introduction of open-ended investment companies (OEICs).

4. This Clause will provide the exemption from stamp duty. Two other Clauses - 98 and 99 - will provide the exemption from SDRT.

DETAILS OF THE CLAUSE

5. Subsection (1) exempts from stamp duty any document transferring property from the trustees of one AUT to the trustees of another AUT when the conditions below are met.

6. Subsection (2) sets out these conditions. They are:

(a) that the whole of the property of the first AUT is transferred to the second AUT,

(b) that all the units in the first AUT are cancelled,

(c) that the unit holders in the first AUT receive units in the second AUT,

(d) in proportion to the units they hold in the original unit trust,

(e) and that no other financial consideration is involved, other than the liabilities of the first AUT being transferred to the second AUT.

7. Subsection (3) requires relevant documents to be stamped to indicate that stamp duty is not due.

8. Subsection (4) defines AUT, the property of a unit trust, a unit, and a unit trust scheme.

9. Subsection (5) states that each part of an umbrella scheme will be treated as a separate scheme. An umbrella unit trust scheme is one which consists of two or more sub-funds, which normally have different investment strategies.

10. Subsection (6) applies the exemption to any document executed on or after the date on which the Finance Bill receives Royal Assent and before 1 July 1999.

BACKGROUND

11. Stamp duty is charged on transfers of shares or other marketable securities at a rate of 0.5 per cent. Units are treated as shares for stamp duty purposes. Therefore the merger of unit trusts would normally attract a stamp duty charge on the transfer, or cancellation, of units, and on the transfer of the investments from one unit trust to the other.

12. The stamp duty treatment of conversions and mergers of AUTs into OEICs will be covered in regulations under Section 152 Finance Act 1995.