STSM053060 - Depositary receipt and clearance services: 1.5 per cent higher rate charge: instalment arrangements - shares issued/transferred direct to a depositary receipt issuer or clearance service
Occasionally, where chargeable securities are issued or transferred on sale direct to a depositary receipt issuer (or its nominee) or clearance service (or its nominee) on terms that the subscription or purchase price of the shares is to be paid in instalments and for an issue of other chargeable securities.
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.
The changes included the removal from domestic legislation of the 1.5% SDRT charges at section 93 (10) and 96 (8) FA1986 on instalment payments in respect of issues and transfers of chargeable securities.
Position prior to 1 January 2024
For any of the instalments that become payable by a depositary receipt issuer (or its nominee) or clearance service (or its nominee), each instalment could give rise, by virtue of section 93 (10) or section 96 (8) FA1986, to a 1.5% SDRT charge, calculated by reference to the amount of each instalment paid. The depositary receipt issuer or clearance service liable to pay the instalment is liable for the tax. The SDRT implications were:
- Transfer on sale of existing registered shares in a UK incorporated company to a depositary receipt issuer or clearance service located anywhere in the world – 1.5% SDRT charged by reference to the amount of each instalment paid.
- Issue of new UK incorporated company shares to a depositary receipt issuer or clearance service located anywhere in the world – no 1.5% SDRT charge.