Preparing your Employee Incentives for the Securities Transfer Tax Era

The UK Government’s proposed new Securities Transfer Tax (STT) represents the biggest change to the taxation of share transfers in decades. While much of the commentary has focused on M&A transactions and listed company share dealings, employers operating employee share plans should also take note.

The new Securities Transfer Tax (STT) is currently draft legislation published by HMRC on 13 July 2026 and is expected to replace Stamp Duty and SDRT from 2027.

Although STT is not expected to take effect until 2027, its introduction signals a move away from the historic Stamp Duty and Stamp Duty Reserve Tax (SDRT) framework towards a single, fully digital tax regime. The Government has stated that STT is intended to modernise and simplify the administration of taxes on securities transfers rather than fundamentally increase tax revenues. The existing 0.5% rate is expected to remain.

What is changing?

Under current rules, transfers of shares can be subject to Stamp Duty or SDRT, depending on how the transaction is structured. The proposed STT will replace both taxes with a single, self-assessed digital system. HMRC expects the new regime to simplify compliance, remove paper-based processes and create greater certainty around reporting obligations.

For most employee share plans, the headline tax rate is not the key issue. Instead, the changes are likely to affect how share transfers are documented, reported and administered.

What impact might the new Securities Transfer Tax have on Employee Share Plans?

For many private companies, employee shareholders acquire shares through option exercises, growth shares or other employee ownership arrangements.

The exercise of an option itself will generally continue to be governed by the existing employment tax rules rather than the new transfer tax regime.

However, STT could become relevant where the exercise of an option is satisfied by using existing shares (which are transferred to the existing option holder) rather than being satisfied by a “new” issue of shares (which would not be subject to stamp duty under the existing regime and STT under the proposed new regime).  Typically, this might be where shares are transferred by another shareholder, or an employee benefit trust.

STT could also become relevant where shares are transferred to another shareholder, an employee benefit trust, or as part of a company sale or reorganisation.

Employers should therefore consider:

• Whether existing share plan documentation refers specifically to Stamp Duty or SDRT.
• Whether exercise procedures and share transfer processes will need updating before STT comes into force.
• How employee share transactions are recorded and administered.
• Whether future exits, buy-backs or internal reorganisations could be affected by the new reporting requirements.

Why does this matter for Companies

Many small and medium-sized businesses have historically treated share transfer taxes as an occasional administrative issue. However, as employee ownership becomes more common, companies are seeing a growing volume of equity-related transactions.

Businesses operating:

• Enterprise Management Incentive (EMI) schemes;
• Growth share arrangements;
• Company Share Option Plans (CSOPs);
• Employee Ownership Trust (EOT) structures; or
• Bespoke employee share plans

should review their arrangements during 2026 and 2027 to ensure they remain fit for purpose.

The shift to a digital-first reporting regime may ultimately simplify administration, but it may also require updates to legal documents, employee communications and internal processes.

In particular, as a change to the current position, the “buyer” will be liable for paying the STT (which could potentially include option holders exercising their options).  The online portal will allow agents to register as the “accountable person” on a joint and several basis but it strikes RM2 that many agents will be reluctant to take on this risk.

It is intended that the penalties for late notification will be changed to a percentage-based regime.

Also, it is the government’s intention that the stamp duty £1,000 de minimis exemption will be removed. Under the proposed legislation, share transfers effected for value will be subject to the STT, irrespective of the amount of the consideration.

Opportunities as well as challenges

The proposed STT should not be viewed as simply another compliance burden. In many respects, the reforms reflect the wider modernisation of UK equity markets and company ownership structures.

For companies already embracing employee ownership, the move away from paper stock transfer forms and separate tax regimes (as regards stamp duty and SDRT) has the potential to make administration more efficient and more transparent. This could be particularly valuable for growing businesses that expect increasing numbers of employee shareholders over time.

What should employers do now?

The draft legislation remains under consultation and may change before implementation. Nevertheless, employers operating employee share plans would be wise to start preparing now.

A sensible review would include:

1. Reviewing share plan and shareholder documentation.
2. Identifying any references to Stamp Duty or SDRT.
3. Considering the impact on future share transfers and exit events.
4. Updating employee communications and FAQs where necessary.
5. Taking advice before any significant share transactions scheduled for 2027 onwards.

While the new Securities Transfer Tax is not expected to alter the fundamental tax advantages of EMI and other approved share plans, it is another reminder that share scheme compliance requires regular review to ensure documentation and administration keep pace with legislative change.

The new Securities Transfer Tax does not undermine the attractiveness of employee share ownership, but companies should use the introduction of STT as an opportunity to review their equity arrangements and ensure they are ready for the UK’s next generation of digital tax administration.

RM2’s specialist advisers are happy to assist you with your employee ownership & employee share plan arrangements, drop us a line at enquiries@rm2.co.uk to book a call with one of our specialist advisers.