CREST causes huge rise in stamp duty

Anomalies in the stamp duty system could cost taxpayers millions of pounds, claims Deloitte & Touche.

Deloittes’ stamp duty team warned that the shift in emphasis from stamp duty to stamp duty reserve tax (SDRT) after the introduction of CREST, the Stock Exchange’s electronic share trading system, means that certain transactions are now subject to 0.5% SDRT instead of the previous nominal 50p stamp duty charge.

Reg Nock, now head of Deloittes’ stamp duty team after his surprise move from Coopers & Lybrand, said: ‘With the size of deals done in the City this could add a significant amount to transaction costs.

‘The optimal solution is for the stamp office to amend SDRT to bring it into line. There is a mismatch between the exemptions and relief for stamp duty, such as management buy-outs and the sale of shares for capital loss, which are not available on CREST.’

Tax duty is an efficient method of raising tax, costing 31p per #100 to collect compared to #3.52 per u100 for capital gains tax. Nock claims that despite the Government’s stated intention to abolish stamp duty on securities transactions, it is difficult to see how they could ‘pass up such a cheap form of revenue’ when there is pressure to reduce income tax.

Nock added that many clients were suffering from an increasingly aggressive interpretation of the duty rules, with one pensioner receiving a demand for #68,000 duty on the transfer of a #64,000 property.

‘It is now the case that the stamp office can end up collecting over 100% duty due to its methods of calculation. I am seeing quite a few cases in that region.

‘If they continue to push it in this way then a lot of transactions that would have attracted a reasonable amount of stamp duty will now attract a large amount. It’s a serious error of commercial and political judgement.’