While not directly aimed at employee incentives, the new securities transfer tax marks a significant shift in the way equity is taxed on transfer - impacting option holders, trusts and legal advisers.

Published: 29 July 2026
Authors: Dan Sharman

HMRC’s much-anticipated overhaul of stamp taxes will introduce a mandatory, self-assessed digital system for securities in 2027. While not directly aimed at employee incentives, the new securities transfer tax marks a significant shift in the way equity is taxed on transfer - impacting option holders, trusts and legal advisers.

The government published draft legislation on 13 July 2026 confirming that the current stamp duty and stamp duty reserve tax regimes will be replaced in 2027 by the Securities Transfer Tax (STT) - a new mandatory, single self-assessed tax on securities.

Now the draft legislation is published we are following up on our previous article (Implications of the Upcoming Changes to the Stamp Taxes Regime on Employee Incentive Arrangements). The key points from our previous article remain the same, which we have set out again below

The introduction of STT signifies HMRC’s ongoing efforts to modernise, simplify and digitalise the UK tax system by allowing taxpayers to use an online portal to pay STT instead of submitting documents to HMRC to ‘stamp’.

Although not directly relevant to employee incentive arrangements, the introduction of the STT may have some interesting consequences for the way employee and manager equity is dealt with.

For clarity, option exercises satisfied by a fresh issue of shares will not attract the STT. However, option exercises satisfied by the transfer of existing shares will be within the scope of the STT.

Key changes under the new STT regime

Key changes affecting employee incentives include the following:

• mandatory tax - Unlike stamp duty, the STT will not be a “voluntary tax” and the buyer (which could include new joiners or option holders exercising their options) will be liable for paying it
• digitalisation - The reporting and payment of the STT will be fully digitalised. Further detail of the proposed online portal is awaited but it is anticipated that confirmation of the transaction will be generated immediately on the reporting and payment of the STT. This should permit the company registrar to write up the register of members simultaneously
• accountable person - The buyer will be liable for the tax, but the online portal will also allow agents, such as legal advisers and accountants, to register as the "accountable person" for paying the tax on behalf of the buyer. An accountable person will be liable for the STT on a joint and several basis with the buyer, unless HMRC are satisfied that the accountable person took all reasonable steps, both before and after the transaction, to recover the tax from the buyer. Clear procedures and evidence trails will be important and legal advisers may be reluctant to assume this role
• removal of the £1,000 de minimis exemption - The £1,000 de minimis exemption (treating transactions with consideration of less than £1,000 as exempt from stamp duty) will be removed.  HMRC’s policy aim is to offset the additional compliance burden through a fully digital reporting and payment process. HMRC had previously indicated that the portal would generate a UTRN/transaction confirmation on submission, which should enable registrars to update the register of members more quickly, although further detail on the portal is still awaited
• late notification penalties - Late notification penalties will be changed to a percentage-based regime.

Benefits of STT for share plans

The STT aims to modernise the method of paying tax on the transfer of shares, through a digitalised system, similar to that currently used to pay Stamp Duty Land Tax. Whilst the details of the reporting process are awaited, it is hoped that the digitalisation will facilitate same-day registrations. There should be no need to enter into declarations of trust (to transfer the beneficial interest in shares) where there is insufficient time to receive an authentication code from HMRC (e.g. where options are exercised on the same day as completion of a sale of the relevant option shares).

Potential challenges for share plans

The main challenges will arise from the removal of the £1,000 de minimis exemption that currently exists for stamp duty. Under existing rules, transfers of shares for consideration of £1,000 or less are exempt, meaning low-value option exercises do not attract stamp duty. However, under the proposed STT rules, share transfers effected for value will be subject to the STT, irrespective of the amount of consideration. Accordingly, all in-scope transfers will need to be reported and the STT paid. While it is hoped that the portal will remove the need for a stock transfer form to be produced and will simplify the current ‘stamping’ process, the STT will create an additional burden for buyers of shares, certain option holders and employee benefit trusts (EBTs) regularly involved in transferring shares to employees, where the small value transfers are currently exempt from stamp duty.

Option holders will be personally liable to pay any STT whenever they exercise their options (assuming those options are satisfied by a transfer of existing shares). any such exercise will incur the STT and this must be paid by the ‘buyer’, but not necessarily the option holder, before completion. A cashless exercise may, therefore, result in the corporate ‘buyer’ being liable for the STT rather than the option holders.  This would greatly simplify any option exercise process immediately prior to completion. The alternative would be for legal advisers to be authorised by the option holders to pay stamp duty on their behalf. This would likely result in the adviser being an ‘accountable person’, where an accountable person will be jointly and severally liable for the STT.

Option holders will be personally liable to pay the STT where relevant, whatever the consideration. Where an M&A transaction requires the exercise of options prior to completion (where options are satisfied by the transfer of shares rather than an issue of new shares), any such exercise will incur the STT and this must be paid by the option holder before completion. Any adviser will be familiar with the potential difficulties of arranging for multiple option holders to sign option documents, often in short timeframes. Therefore, to streamline the STT process prior to completion, legal advisers may need to be authorised by the option holders to pay STT on their behalf. With this in mind, effective wording should be built into the option exercise documents to grant such authority and avoid potential delays to the transaction. A point to watch is the draft definition of ‘buyer’, which refers to the person by whom the consideration for the transfer is payable and may differ from the transferee. We will await further guidance from HMRC as to how this might apply in practice.

The change from a “voluntary” tax to a mandatory tax, with the purchaser liable to pay, also adds a cost to employees participating in equity incentive arrangements which historically have often been borne by the company setting up the arrangements. Going forward, it seems that if a company wants to cover this cost for its participating employees, it will need to “gross up” the tax as it will be paying the employee’s tax liability on their behalf (which is considered a taxable benefit under general tax principles).

What should businesses do now?

Companies operating share plans should start identifying where and when the STT may arise and consider what process changes may be needed. In particular, they should:

• review option exercise processes where awards are satisfied by transfers of existing shares
• consider whether option exercise documents should provide for the delegation of authority for payment/reporting of the STT
• review EBT transfer processes and who will be responsible for any STT reporting and payment
• monitor the progress of the draft legislation and HMRC guidance, seeking specialist tax and incentives advice where needed.

Conclusion

The publication of draft legislation is a significant step towards the modernisation of the UK’s stamp taxes regime. Overall, the new digital streamlined processes should generally reduce the time, administrative burden and associated costs for companies implementing share plans, though companies will need to factor in STT costs for lower-value transactions that would currently be exempt. The digital process may make routine filings more straightforward, but businesses will still need controls to ensure STT is identified, reported and paid on time for every share transfer to avoid penalties accruing.

For further advice please contact Dan Sharman dan.sharman@shoosmiths.com or Laura Gould laura.gould@shoosmiths.com