This article was first published in PLC magazine

The government announced a package of technical tax policy proposals on 28 April 2025. A number of the publications pick up areas of reform mooted back in 2023. This update picks up on responses and further consultations on two key areas of reform: stamp duty and certain aspects of the UK’s international tax rules. 

Stamp duty Modernisation: long overdue reform

The government has confirmed that it is going ahead with the proposal to introduce a mandatory, single tax on securities, replacing the separate taxes for electronic transfers (SDRT) and paper instruments (stamp duty). This initiative is highly anticipated and is expected to alleviate the complexity and practical challenges presented by the current system. The government aims to introduce the single tax in 2027.

For electronic transfers, settlement would continue through the CREST system. For other transfers, the new tax will be self-assessed and typically payable by the purchaser of securities via an online portal (in a similar way to the payment of SDLT at present).  

At present, SDRT is potentially charged on paper transfers but the payment of stamp duty effectively franks that potential charge. This has led to an odd potential for overlap between the two systems. The current stamp duty regime also presents difficulties due to delays caused by the fact that company registrars must wait until they receive stock transfer forms stamped by HMRC before they update registers of members after share transfers. A practice has evolved, known as the “declaration of trust route”, to try to manage this issue, but the move to a streamlined approach makes much more sense.   

HMRC does not wish to disconnect the updating of registers from the single tax on securities. Instead, practical steps will be reformed to resemble the current stamp duty land tax regime. A tax return would be submitted online through a portal, and a unique taxpayer reference number (UTRN) would be issued immediately upon submission. The receipt and entry of this UTRN onto the stock transfer form would permit the updating of company registers. It is noteworthy that the consultation specifies that the UTRN issuance is tied to the return submission rather than the tax payment.

The proposals also have implications for dealing with deferred consideration and timing of payment. There are also implications for transfers at a nominal value as the current £1,000 de minimis will not be replicated in the new regime. There remains a substantial amount of detail to be finalised and more will be known when draft legislation is published “in due course”. 

A consultation on the 1.5% higher rate charge was published alongside the responses to the Modernisation of Stamp Taxes consultation. The consultation seeks views on how the 1.5% charge which applies to transfers to a clearance service or depository receipt issuer operates. 

Responses to the consultation are requested by 21 July 2025.

Reform of a number of areas of the UK’s international tax rules

Also following a policy consultation in 2023, the government has published a technical consultation on draft legislation to reform the transfer pricing, permanent establishment and diverted profits regimes. These contain a lot of technical detail. Some headline points follow.

Transfer pricing

The key proposal on transfer pricing was to limit the application of UK-to-UK transfer pricing to specific circumstances identified as presenting tax arbitrage opportunities. This will be a welcome change as the way in which transfer pricing works means that purely domestic adjustments are usually of no impact. The draft legislations provides for an exemption for transactions between UK resident companies where they are subject to the same rate of UK corporate tax with an ability to elect into UK-UK transfer pricing if administratively simpler due to existing pricing approaches. There are targeted exceptions and HMRC retains the right to give notice disapplying the exemption.

Other changes include a proposal to introduce a concept of direct participation bringing within scope of the UK’s transfer pricing rules, situations where relevant entities are governed by an agreement for common management. The draft legislation also includes an anti-avoidance provision targeting arrangements designed to circumvent the participation condition as well as detailed drafting designed to align the UK transfer pricing rules for guarantees and “implicit support” given by the wider group, with the OECD’s Model Tax Convention and Transfer Pricing Guidelines. 

Permanent Establishment (PE)

As anticipated, the proposed legislation updates the UK regulations regarding the attribution of profits to permanent establishments, specifying that the relevant 2017 OECD guidance may be used to interpret the separate enterprise principle. 

The OECD definition of “dependent agent permanent establishment) (DAPE) applies where a person acting on behalf of a company “habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts, that are routinely concluded without material modification by the company”. Despite the government’s assurances that a person falling within this new definition would also fall within the current UK rules, investment funds and certain other structures will want to examine this closely. 

The consultation recognises that the DAPE definition places a greater strain on the Investment Manager Exemption, a statutory rule designed to assist the UK’s fund management industry by providing, broadly, that a UK-based investment manager will not constitute a PE of a non-UK resident client merely by virtue of trading in investments on the client’s behalf. The government is clear it intends to retain the IME and a number of amendments are made to the IME legislation which are intended to clarify its scope and make it easier to apply. The government has also published a draft of a revised Statement of Practice 1/01 which provides guidance on how to interpret the IME. The amendments are again, broadly positive, but will be being carefully scrutinised by the UK asset management industry.

Diverted Profits Tax (DPT)

The headline in respect of the proposals for diverted profits tax (DPT) is that it will be withdrawn as a separate tax and broadly replicated with the creation of a new charging provision with the corporation tax regime. This is another welcome reform, providing simplification and clarity, particularly in respect of the interaction of the regime with transfer pricing and the corporation tax enquiry framework and also clearer access to treaty benefits.

Responses to the consultation are requested by 7 July 2025.