STSM107020 | Collectives: contributions, mergers and other matters: contribution to an existing unit trust / Open-Ended Investment Company

Unit Trust

Where an investor (or investors) ‘seeds’ a newly created unit trust (or new sub-fund of a unit trust) by transferring to it property, other than cash, which includes ‘stock or marketable securities’ or ‘chargeable securities’, and such property will represent the only investment(s) held by the trust fund, no Stamp Duty or Stamp Duty Reserve Tax (SDRT) charge arises on the transfer, or on the units issued as consideration.

This is because, at that stage, the only units in issue are those held by the transferor, and since, in law, unit holders hold an undivided share in the property of the unit trust fund, no change of ownership in the underlying securities takes place.

An initial investor(s) therefore has a 100% in the underlying investments, as indeed he did before the transfer was undertaken. In these circumstances, the transfer of property into the trust fund is regarded as being a transfer otherwise than on sale and therefore outside the scope of a Stamp Duty charge (FA99/SCH19/PARA1(1)).

Similarly, the contributed property is not regarded as an agreement to transfer chargeable securities for the purposes of the FA86/S87 charge.

Subsequent contributions of other investments which includes stock or marketable securities, or chargeable securities by the same sole investor will equally be outside the scope of a Stamp Duty or SDRT charge for the reasons outlined above.

A subsequent in specie contribution of stock or marketable securities or chargeable securities by another investor which does not ‘mirror’, or proportionately ‘mirror’ the investments already held within the unit trust (or sub-fund of the unit trust) in return for the issue of units will be incur a Stamp Duty liability under FA99/SCH13 and FA99/SCH13/PARA 1(2)(a).

The issue of units as consideration for the contributed property is regarded as stock for Stamp Duty charging purposes by virtue of FA99/SCH19/PARA19. Where no paper instrument is executed completing such transaction, the contribution is regarded as an agreement to transfer subject to the FA86/S87 SDRT charge.

The charge is because the beneficial interests and entitlements of the underlying fund scheme’s investments will change as a consequence of the transaction, unless the transfer is undertaken by way of a pro rata in specie contribution (see STSM107030 ).

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Open-Ended Investment Company

The position of an OEIC is fundamentally different in law. Beneficial ownership of the underlying assets rests with the OEIC itself, rather than the investor, as an OEIC, unlike a unit trust, is regarded as a separate corporate body entity for tax purposes.

A transfer of property which includes stock or marketable securities to a new or existing OEIC (or to a new or existing sub-fund of an OEIC) by means of a formal instrument of transfer will give rise to a Stamp Duty charge under FA99/SCH19/PARA1(2) and FA99/SCH13.

Where no written instrument is executed, a contribution of chargeable securities to a new or existing OEIC (or to a new or existing sub-fund of an OEIC) by an initial or subsequent investor(s) is an agreement to transfer upon which a SDRT FA86/S87 charge arises. The charge is irrespective of whether the transfer is undertaken by way of a pro rata or non-pro rata contribution

There is no legislative provision that enables transfers of chargeable securities from initial investors to a newly created OEIC (or to a sub-fund of an OEIC) in return for shares in that OEIC (or sub-fund of an OEIC), to be exempt or relieved from Stamp Duty or SDRT.

Schedule 19 Finance Act 1999

Where a contribution of property other than cash to a unit trust or OEIC occurs prior to the abolition of FA99/SCH19 on 30 March 2014, the fund manager of the scheme must not include the number of unit/OEIC shares issued as consideration in his monthly SDRT computation for FA99/SCH19 purposes.

More information regarding the monthly Schedule 19 computation can be found at STSM104000 and the abolition of FA99/SCH19 at STSM103005.

See STSM101020 for the meaning of a unit trust.

See STSM101050 for the meaning of an OEIC.

See STSM104080 for information of a SDRT monthly notice.

See STSM103070 for the meaning of a ‘relevant two-week period’.

See STSM021040 for the meaning of ‘stock or marketable securities’.

See STSM031090 for the meaning of ‘chargeable securities’.