Proposed UK tax shake-up may hit secondaries

A recommendation to digitise stamp duty payments could expose fund managers restructuring, reorganising or transferring partnerships to more tax.

Transfers of partnerships, restructurings and general reorganisation of UK funds would be subject to more tax under proposals put forward by the independent UK government advisor, the Office of Tax Simplification.

The OTS recommended the UK tax authority, Her Majesty’s Revenue and Customs, consider the extent to which stamp duty should be payable on instruments transferring partnership interests. It also suggested making stamp duty an assessable tax, which could increase the amount of tax collected in relation to partnership interests.

“This will impact secondaries transactions, but also LP and GP transfers and general fund reorganisations as it is not currently compulsory or market practice to get transfer documents stamped and to pay the stamp duty on transfers of partnership interests,” law firm Goodwin said in a client note.

Loopholes in the current system mean stamp duty can often be avoided when partnership changes are made, but under the OTS recommendations that the tax be digitised, combined with stamp duty reserve tax and made assessable, it could become compulsory.

Currently, stamp duty applies in principle to the transfer of interests in partnerships, but as paperwork must be physically stamped it is usually only paid in cases when there is a requirement to use the documentation in the UK, for example in court. This makes the tax almost optional, and the UK tax authority has little power to enforce its collection.

It is now up to the government whether it wants to take these recommendations forward.