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Contributions to a Unit Trust

Where an investor is able to contribute property (including chargeable securities or stock or marketable securities) to an existing unit trust (or an existing sub-fund of an unit trust) in quantities that exactly match the same investments and same quantities already held as investments by the unit trust fund, or is able to proportionately contribute (as practicably as possible), a quantity of each property already held by the fund, such a contribution is regarded as being undertaken on a pro rata in specie basis.

‘Pro rata� and ‘in specie� are Latin terms meaning, respectively, ‘in proportion to� and ‘in the actual form�. Transferring property ' pro rata in specie' means to transfer the ownership of that property from one person/company/entity to another person/company/entity in its current form (so without the need to convert the property to cash), in proportion to the same kind of property already held by the recipient.

For example, if a unit trust fund holds 100 ABC Ltd shares and 200 DEF shares and an investor transferred a further 100 ABC and 200 DEF shares to the fund, the contribution is regarded as pro rata in specie, as it matches the investments already within the fund.

Similarly, if an investor transferred 50 ABC and 100 DEF shares to the fund, the contribution is regarded as pro rata in specie, as it proportionately matches the investments held by the fund.

In this situation, the investor is not relinquishing ownership of their property in return for a different proportionate percentage interest in each of the existing underlying investments (which includes their own contributing property) contained in the fund. There is therefore no transfer on sale, or an agreement to transfer, as the transaction represents, in effect, no change of beneficial ownership (NCBO). Consequently, there are no SDRT (or Stamp Duty) implications.

Contributions to an Open-Ended Investment Company (OEIC)

There is no comparable exemption where there is a pro rata in specie contribution to a new or existing OEIC or sub-fund of an OEIC (or equivalent OEIC corporate body).

This is because, unlike a unit trust fund, a corporate body is considered to be the beneficial owner of property that is transferred to it.

In such situations, the investor is relinquishing ownership of their stock or marketable securities in return for a proportionate percentage interest in each of the existing underlying investments (which includes their own contributing shares) held within the OEIC (or sub-fund of the OEIC).Ìý

In relinquishing ownership, the contribution of any stock or marketable securities is regarded as being a transfer on sale and chargeable to Stamp Duty on the value of the shares issued in consideration (Schedule 13 FA1999 paragraph 1(2) of Schedule 19 to FA1999). The issue of OEIC shares as consideration for the contributed property is regarded as ‘stock� for Stamp Duty charging purposes.

If the contribution is not completed by a written instrument and duly stamped with Stamp Duty, the contribution of chargeable securities is regarded as an agreement to transfer between the investor and the OEIC (or OEIC sub-fund) fund manager and subject to a 0.5% SDRT charge under section 87 FA1986, with the issue of OEIC shares being consideration in money’s worth.

Schedule 19 Finance Act 1999

Where a contribution of property other than cash to a unit trust or OEIC occured prior to the abolition of the Schedule 19 FA1999 SDRT charge on 30 March 2014, the manager of the scheme must not have included the number of unit/OEIC shares issued as consideration the monthly SDRT computation.Ìý

More information on the previous monthly Schedule 19 computation can be found at STSM104000 and on the abolition of the charge at STSM103005.Ìý

Further information

See STSM101020 for the meaning of a unit trust.

See STSM101050 for the meaning of an OEIC.

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

See STSM031090 for the meaning of ‘chargeable securities�.