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Changes to the loan capital exemption in section 79(4) FA 1986 and the
definition of "loan capital" in s78(7) FA 1986
The loan capital exemption from Stamp Duty Reserve Tax (SDRT) in section
79(4) FA 1986 is to be amended so that the exemption will apply, from Royal
Assent, to securities issued by securitisation companies in capital market
arrangements, where interest is on limited recourse terms and is calculated
in relation to profits or assets of the issuer or other entities.
The definition of loan capital in s78(7) FA 1986 will also be amended to
ensure that alternative finance bonds issued by special purpose vehicles in
alternative financing arrangements are treated as "loan capital" for the
purposes of the loan capital exemption.
Our view
Although these amendments are to be welcomed, further rationalisation of the definitions of chargeable securities for SDRT purposes and the loan capital exemption would be desirable to make it clearer that structured securities without equity characteristics and/or which do not have a return based on underlying chargeable securities, do not attract SDRT.
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Changes to Schedule 19 FA 1999
It was announced that a package of measures are to be introduced affecting
taxation of the UK funds industry. Managers of UK unit trust schemes and UK
OEICs are currently liable to SDRT under Schedule 19 FA 1999 of 0.5% of the
value of units and shares surrendered by investors. The charge is reduced
where the number of surrenders in a given two week period exceeds the number
of issues in the same period. It is also proportionately reduced to the
extent that the fund contains certain exempt investments. The nature of the
proposed changes have not yet been determined but they may, as suggested in
a discussion paper issued by the Treasury on 12 November 2007, take the form
of a charge based on assets under management or a simplified charge based
merely on the number of surrenders in a given period.
Our view
Details of the changes will need to be considered as they emerge. While any changes that make the Schedule 19 regime less cumbersome and operationally difficult are to be welcomed, consideration should be given to the abolition of these charges because the administrative burden it places on fund managers is not justified by the receipts arising from the tax (the Exchequer revenue from Schedule 19 was £70 million in 2005 – 2006) and they represent a continuing disincentive to establish funds in the UK).
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