Draft legislation generally excludes partnership interests from the new securities transfer tax, subject to a targeted anti-avoidance rule for arrangements involving underlying chargeable securities.
On 13 July 2026, the UK Government published draft legislation that will introduce a new securities transfer tax in the UK (replacing stamp duty and SDRT) and which, if enacted, would bring an end to offshore execution on LP secondary transfers.
Under current law, the transfer of a partnership interest that holds shares and is executed in the UK technically falls within the scope of UK stamp duty, even where the partnership does not hold UK shares and is not a UK partnership. However, UK stamp duty is a voluntary tax, so it is generally only paid if a stamped document is required to update company records or a party wishes to rely on the transfer document in UK court proceedings. Since a stamped document is not required to update the partnership register, stamp duty is rarely paid on LP secondary transfers.
If the transfer documents relating to a non-UK partnership are executed outside of the UK and the parties are non-UK, the transfer should be outside the scope of UK stamp duty. Historically, it was standard market practice for the PSA to require the parties to execute and retain the original PSA and all transfer documents offshore. However, the increased volume of transactions together with the costs and practical complexities of offshore execution have led many parties to accept that offshore execution is overly burdensome.
As part of the Office for Tax Simplification’s project on the modernisation of UK stamp duty, the government proposed in a 2023 consultation that the transfer of partnership interests should be outside the scope of the new securities transfer tax (which is intended to replace stamp duty).
It is expected that the securities transfer tax will come into effect in 2027. Consistent with the 2023 consultation proposal, the draft legislation does not include partnership interests in the definition of ‘chargeable securities’ which are subject to the securities transfer tax. This is, however, subject to a targeted anti-avoidance rule, such that a transfer of a partnership interest where the partnership property includes chargeable securities, will be subject to securities transfer tax if it is:
‘reasonable to conclude that the underlying securities came to be held as partnership property as a result of arrangements whose main purpose, or one of whose main purposes, was the avoidance of securities transfer tax.’
A targeted anti-avoidance rule is sensible, as it prevents parties from simply ‘enveloping’ UK shares in a partnership structure to avoid securities transfer tax. The rule focuses on the circumstances in which the securities were acquired by the partnership, rather than on the subsequent transfer of the partnership interest. This is helpful because it should mean that transfers of partnership interests are not caught simply because the securities transfer tax was considered when determining the most efficient level in a structure at which to effect an exit.
Nevertheless, the new anti-avoidance rule could give rise to practical issues for LP secondary transfers. Buyers must self-assess their liability to securities transfer tax (i.e. unlike stamp duty, it will not be a voluntary tax), so a buyer of an LP interest would need to determine to the best of their information and belief whether the LP transfer is within the anti-avoidance rule. Buyers are unlikely to have access to the tax advice obtained when the original structure was established and may therefore find it difficult to determine whether avoidance of securities transfer tax was one of the main purposes for holding securities through a partnership.
HMRC guidance on what evidence buyers would be expected to obtain to demonstrate the purposes of establishing the structure would be welcome. It would also be helpful if HMRC made clear in guidance that buyers of interests in widely marketed funds would not ordinarily be expected to be subject to securities transfer tax.
In any event, the introduction of the new securities transfer tax would effectively bring an end to offshore execution since the place of signing is not relevant to the scope of securities transfer tax and in particular, the anti-avoidance rule does not consider where the transaction documents are signed. This would provide welcome certainty for the market and remove a costly and administratively burdensome execution process on LP secondary transfers.
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The end of offshore execution on secondary transactions
Draft legislation generally excludes partnership interests from the new securities transfer tax, subject to a targeted anti-avoidance rule for arrangements involving underlying chargeable securities.
On 13 July 2026, the UK Government published draft legislation that will introduce a new securities transfer tax in the UK (replacing stamp duty and SDRT) and which, if enacted, would bring an end to offshore execution on LP secondary transfers.
Under current law, the transfer of a partnership interest that holds shares and is executed in the UK technically falls within the scope of UK stamp duty, even where the partnership does not hold UK shares and is not a UK partnership. However, UK stamp duty is a voluntary tax, so it is generally only paid if a stamped document is required to update company records or a party wishes to rely on the transfer document in UK court proceedings. Since a stamped document is not required to update the partnership register, stamp duty is rarely paid on LP secondary transfers.
If the transfer documents relating to a non-UK partnership are executed outside of the UK and the parties are non-UK, the transfer should be outside the scope of UK stamp duty. Historically, it was standard market practice for the PSA to require the parties to execute and retain the original PSA and all transfer documents offshore. However, the increased volume of transactions together with the costs and practical complexities of offshore execution have led many parties to accept that offshore execution is overly burdensome.
As part of the Office for Tax Simplification’s project on the modernisation of UK stamp duty, the government proposed in a 2023 consultation that the transfer of partnership interests should be outside the scope of the new securities transfer tax (which is intended to replace stamp duty).
It is expected that the securities transfer tax will come into effect in 2027. Consistent with the 2023 consultation proposal, the draft legislation does not include partnership interests in the definition of ‘chargeable securities’ which are subject to the securities transfer tax. This is, however, subject to a targeted anti-avoidance rule, such that a transfer of a partnership interest where the partnership property includes chargeable securities, will be subject to securities transfer tax if it is:
‘reasonable to conclude that the underlying securities came to be held as partnership property as a result of arrangements whose main purpose, or one of whose main purposes, was the avoidance of securities transfer tax.’
A targeted anti-avoidance rule is sensible, as it prevents parties from simply ‘enveloping’ UK shares in a partnership structure to avoid securities transfer tax. The rule focuses on the circumstances in which the securities were acquired by the partnership, rather than on the subsequent transfer of the partnership interest. This is helpful because it should mean that transfers of partnership interests are not caught simply because the securities transfer tax was considered when determining the most efficient level in a structure at which to effect an exit.
Nevertheless, the new anti-avoidance rule could give rise to practical issues for LP secondary transfers. Buyers must self-assess their liability to securities transfer tax (i.e. unlike stamp duty, it will not be a voluntary tax), so a buyer of an LP interest would need to determine to the best of their information and belief whether the LP transfer is within the anti-avoidance rule. Buyers are unlikely to have access to the tax advice obtained when the original structure was established and may therefore find it difficult to determine whether avoidance of securities transfer tax was one of the main purposes for holding securities through a partnership.
HMRC guidance on what evidence buyers would be expected to obtain to demonstrate the purposes of establishing the structure would be welcome. It would also be helpful if HMRC made clear in guidance that buyers of interests in widely marketed funds would not ordinarily be expected to be subject to securities transfer tax.
In any event, the introduction of the new securities transfer tax would effectively bring an end to offshore execution since the place of signing is not relevant to the scope of securities transfer tax and in particular, the anti-avoidance rule does not consider where the transaction documents are signed. This would provide welcome certainty for the market and remove a costly and administratively burdensome execution process on LP secondary transfers.
