IR16

9 March 1999

STAMP DUTY: COMPLIANCE AND ADMINISTRATION

Chancellor Gordon Brown today announced a package of measures which
will update and strengthen the operation of Stamp Duty and make sure
it works fairly. These proposals will:

  - improve voluntary compliance by introducing an interest charge on
    Stamp Duty paid late, and bringing penalties for non compliance 
    up to modern levels;

  - streamline administration of Stamp Duty;

  - introduce a relief to allow depositary interests in foreign 
    shares to be traded in the UK without a charge to Stamp Duty 
    Reserve Tax (SDRT); and

  - clarify aspects of the operation of SDRT and ensure the tax 
    operates as intended.

DETAILS

Compliance package

1. The package was foreshadowed in the Pre-Budget Report. It will
introduce separate interest and penalty charges in place of the
current system of penalties. Introducing an interest charge will also
have the effect of eliminating a defect in the current regime which
allows some taxpayers to defer payment of duty without paying
interest by keeping a document abroad until it is needed in the UK.

Interest

2. Interest will be charged on duty that is not paid within 30 days
of the execution of a document subject to Stamp Duty, wherever
execution takes place. The amount of interest will be rounded down
where necessary to a multiple of #5. But no interest will be payable
unless the calculated amount is at least #25.

3. Interest will in future be added to repayments of overpaid Stamp
Duty as is already the case for SDRT and other taxes. Interest will
run from 30 days after execution of the document, or from the date of
payment of the duty if later.

4. Interest rates will be set by Order of the Board of Inland Revenue
from time to time and for both Stamp Duty and SDRT the rate of
interest on late paid tax will be higher than that added to
repayments.

5. Interest paid will not be allowable as a deduction in computing
profits and losses for tax purposes. And interest added to repayments
will not count in computing any profits or income for tax purposes.

Penalties

6. Penalties will in future apply to all documents submitted for
stamping more than 30 days after the document was executed (or, in
the case of documents executed abroad, over 30 days after the
document is first brought into the UK). There will be a maximum
penalty of #300 (or the amount of duty if less) on documents
submitted up to one year late; and of #300 (or the amount of duty if
more) for documents submitted later than that. No penalty will be
charged if there is a reasonable excuse for the delay, and all
penalties will be open to mitigation.

7. There are a number of Stamp Duty penalties for administrative
offences, including failure to provide information, refusal to allow
inspection of documents, and actions with intent to defraud. Many of
these are unchanged since the 1891 Stamp Act. Current levels are #10
(or in some cases #20 or #50). These will be increased to #300 or,
where the offence is one of fraud, to #3000, subject as now to
mitigation in appropriate cases.

Fixed duties

8. The fixed stamp duties, mostly 50p, are to be increased to #5.
These are duties on certain transactions other than sales - for
example, declarations of trust, duplicates, and transfers to a
nominee. Sometimes documents presented for stamping at 50p are in
fact conveyances on sale, and so the obligation to pay this fixed
charge helps the Inland Revenue identify transactions on which a
greater amount of Stamp Duty is payable. Like the fixed penalties,
most of these duties were set at their current levels in the last
century.

Rounding

9. In order to streamline the administration of Stamp Duty, the
current charging provisions, under which the amount of duty otherwise
due is rounded up (to a multiple of between 50p and #12) will be
standardised to provide for rounding up to a multiple of #5 in all
cases. This will not affect any calculation of SDRT where there are
no rounding provisions.

Depositary interests in foreign shares

10. Regulatory powers will be taken in the Finance Bill to provide a
relief from SDRT for transfers of interests in foreign shares by
means of a new legal instrument, to be known as a depositary
interest. This will enable an operator of an electronic settlement
system who is approved under the Uncertificated Securities
Regulations 1995 to provide a settlement service for transactions in
foreign shares, without purchasers incurring a liability to SDRT.

Foreign currency bearer instruments

11. The Government announced on 29 January the immediate closure of a
loophole in the SDRT rules, where in cross border mergers and
takeovers UK companies create bearer securities denominated in
foreign currency which are put in a depositary or clearance system.
The legislation in the Finance Bill will also specify that from today
there will be a charge on any issue of foreign currency bearer
securities unless they carry a right to interest or a dividend at a
fixed rate and are subscribed for cash. But this will not affect the
announced exception for instruments giving effect to a written
agreement for a merger or takeover made by the companies involved on
or before 29 January.

Operation of SDRT

12. There will also be an amendment to the exemption from the
principal charge to SDRT (i.e. the charge at 0.5 per cent) for
agreements to transfer securities held within a clearance service.
From today this relief will be expanded to cover cases where the
business of the person holding the securities is not exclusively that
of providing clearance services,

13. Section 98 of Finance Act 1986 gives the Treasury general powers
to make regulations for the administration of SDRT. The purpose and
effect of those powers will be clarified in the forthcoming Finance
Bill and the powers will be restated in the modern style to provide
explicitly that the regulations may cover penalties and interest in
relation to tax and the provision of information with penalties for
the failure to do so.

NOTES FOR EDITORS

The Stamp Duty package is expected to yield about #25 million in
1999-2000, #25 million in 2000-01, and #25 million in 2001-02.

INLAND REVENUE PRESS OFFICE
Media enquiries to:           0171 438 6692/6706/7327
(Out of hours: 0860 359544)

Non-media enquiries to :      0171 438 6420/6425
(Office hours only)

Inland Revenue information is on the Internet:
www.inlandrevenue.gov.uk

# = pounds sterling