STSM053010 - Depositary receipt and clearance services: 1.5 per cent higher rate charge: when a higher rate charge arises

Although the commercial differences between depositary receipt and clearance services have given rise to separate provisions in statute, the rules governing the scope of a 1.5% charge and when a charge can arise are very similar.

Stamp Duty

A charge to 1.5% Stamp Duty may arise in respect of transfers (on sale or otherwise than on sale) of relevant securities of a company incorporated in the United Kingdom (UK) to:

  • a person (or his agent or nominee) whose business is exclusively that of holding securities for a bank’s depositary receipt business, or for a clearance service; or
  • to certain other persons specified by Treasury Order (although no such orders have to date been made).

See section 67 (1) FA1986 and section 70 (1) FA1986.

No 1.5% charge applies to shares that are issued to a depositary receipt issuer or clearance service.

Stamp Duty Reserve Tax (SDRT)

A charge to SDRT may arise where in pursuance of an arrangement:

  • chargeable securities of a company incorporated in the UK are transferred (on sale or otherwise than on sale), to a depositary receipt issuer (or his nominee); and a depositary receipt is issued or is to be issued (section 93 FA1986).
  • chargeable securities of a company incorporated in the UK are transferred (on sale or otherwise on sale) to a clearance service (or its nominee) for the provision of clearing services (section 96 FA1986).

Background of the 1.5% charge

Following EU (HSBC Holdings plc and Vidacos Nominees Ltd v HMRC) and UK (HSBC Holdings plc and The Bank of New York Mellon v HMRC) court decisions in 2009 and 2012, HMRC recognised that the 1.5% Stamp Duty and SDRT charges on the issue of securities and certain transfers were incompatible with the Capital Duties Directive (Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital, and the predecessor directive, Council Directive 69/335/EEC of 17 July 1969).

Following this, in a 2017 decision the Court of Justice of the European Union ruled in the Air Berlin case that no 1.5% charge applied on the transfer of legal title in chargeable securities in connection with the listing of shares on a stock exchange.

UK legislation providing for the 1.5% charge on transactions of the types covered in these cases was not originally amended as taxpayers were able to rely on the direct effect of EU law up to and including 31 December 2023. However, the changes in the Retained EU Law (Revocation and Reform) Act 2023 meant that this would no longer be the case, so UK legislation was amended to prevent the 1.5% charge being reintroduced for these transactions.

The 1.5% charge on the issue of UK securities into depositary receipt systems and clearance services and on certain transfers was removed from domestic legislation with effect from 1 January 2024. Guidance on these changes can be found at STSM053080 onwards.