Loan capital exemption from stamp duty
Loan capital exemption from stamp duty

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Loan capital exemption from stamp duty
  • HMRC guidance—Stamp Taxes on Shares Manual
  • Exemption from stamp duty and SDRT is automatic—no claim required
  • Meaning of loan capital
  • No exemption if right to convert into, or acquire, shares or loan capital
  • No exemption if right to excessive interest
  • No exemption if right to results-dependent interest
  • No exemption if right to repayment of an amount exceeding principal
  • Practical implications

Debt which:

  1. qualifies as loan capital (whether it is short or long-term debt), and

  2. satisfies further conditions aimed at ensuring that it is a normal commercial loan (although certain types of loan capital with equity-like features have still managed to pass these conditions, for which see: Practical implications below)

is exempt from stamp duty that would otherwise apply to an instrument effecting a transfer on sale of such loan capital. Loan capital that falls within the loan capital exemption from stamp duty is referred to as exempt loan capital.

This Practice Note:

  1. explains that there is no need to claim the loan capital exemption

  2. explains how the loan capital exemption from stamp duty indirectly applies to stamp duty reserve tax (SDRT)

  3. outlines:

    1. the definition of loan capital, and

    2. the conditions that must be satisfied for the exemption to apply, including the modifications made to the loan capital exemption in respect of capital market instruments (ie notes issued by securitisation vehicles) and alternative finance investment bond arrangements, and

    3. illustrating the conditions of the loan capital exemption using practical examples

  4. discusses the exemption from ‘all stamp duties’ for an instrument transferring hybrid capital instruments (HCIs) which took effect on 12 February 2019—because it is phrased as an exemption from 'all stamp duties' on transfer, such HCIs are excluded from the definition of 'chargeable securities', thereby