STSM053110 - Depositary receipt and clearance services: 1.5 per cent higher rate charge: exempt listing transfers and exempt listing instruments

With effect from 1 January 2024, no 1.5% charge will arise on exempt listing transfers (SDRT) or exempt listing instruments (Stamp Duty).

Exempt Listing Transfers

These are defined in section 97AC FA1986, which states that a transfer of chargeable securities is an “exempt listing transfer” if the transfer is in the course of qualifying listing arrangements and those arrangements do not affect the beneficial ownership of the chargeable securities.

“Listing arrangements” are arrangements pursuant to which chargeable securities, or depositary receipts for chargeable securities, are listed on a recognised stock exchange. For a transfer to be in the course of “qualifying” listing arrangements, then the company’s chargeable securities (or depositary receipts for chargeable securities in the company) must be admitted to trading and officially listed on the relevant stock exchange for the first time as a result of those arrangements.

In order for a transfer to be “in the course of” a qualifying listing arrangement, HMRC would expect that the transfer was linked to the listing arrangement and was contemporaneous with the listing of securities (or depositary receipts for chargeable securities in the company).

HMRC understands that, in practice, it may take some time for the practical steps to be completed in order to complete the transfer process. HMRC considers that a transfer within 4 months of the listing would be sufficiently contemporaneous.

Transfers made more than 4 months after the relevant listing event are unlikely to be sufficiently contemporaneous, but the fact pattern of such cases would need to be considered in order to determine this. An investor may choose not to undertake a transfer in the course of qualifying listing arrangements, and, for example, decide to retain their holding in certificated form instead. If they later (more than 4 months after the relevant listing event) decide that they wish to transfer their shares to a depositary receipt issuer or clearance service, perhaps because they wish to sell them at that time, then a 1.5% SDRT or Stamp Duty charge may arise on the transfer. This is different to the situation where the investor wants to make a contemporaneous transfer but is prevented from doing so by a restriction (see Restrictions which prevent transfers below).

Example 1

A company is not listed on any stock exchange. It decides to list on the Nasdaq in the USA, through an American Depositary Receipt (ADR) programme (see STSM051010). As part of the listing arrangement, its existing shareholders transfer their shares to a depositary receipt issuer on a no change of beneficial ownership (NCBO) basis, and the depositary issues American Depositary Shares (ADSs)/ ADRs in respect of the shares to allow trading on Nasdaq. No 1.5% charge arises on the transfer.

Example 2

A company is listed on the London Stock Exchange (LSE). It decides to undertake a secondary listing on the New York Stock Exchange (NYSE). As part of the listing arrangement, its existing shareholders, on an NCBO basis, transfer their shares to a depositary receipt issuer, which issues ADSs/ADRs in respect of the shares to allow trading on NYSE. No 1.5% charge arises on the transfer.

Example 3

A company is listed on the LSE and on the NYSE (through an ADR programme). It decides to delist from the LSE and retain a sole listing on the NYSE. As a consequence, existing shareholders, who hold their shares outside of ADR form, transfer their shares to a depositary receipt issuer, which issues ADSs/ADRs in respect of the shares. This is not a qualifying listing arrangement, as ADRs in the company were already listed on the NYSE. A 1.5% charge may arise on the transfer.

Example 4

A company is listed on the LSE. It decides to undertake a secondary listing on the NYSE of its shares. As part of the listing arrangement, its existing shareholders, on an NCBO basis, transfer their shares to a clearance service nominee, which issues book-entry interests in respect of the shares to allow trading on NYSE. No 1.5% charge arises on the transfer.

Example 5

A company is listed on the LSE. It decides to move its primary listing to the Nasdaq. As part of the listing arrangement, its existing shareholders, on an NCBO basis, transfer their shares to a clearance service nominee, which issues book-entry interests in respect of the shares to allow trading on Nasdaq. No 1.5% charge arises on the transfer.

Restrictions which prevent transfers

A transfer of chargeable securities is not prevented from being an exempt listing transfer by reason only of a delay in transferring the chargeable securities where:

  • The transferor acquires the chargeable securities before the qualifying listing arrangements are entered into,
  • the transferor is subject to a restriction that has the effect of preventing the transfer of the chargeable securities in the course of the qualifying listing arrangements, and
  • the transfer is made as soon as reasonably practicable after the time at which the restriction ceases to have effect.

Restriction

The legislation does not define “restriction”. In practice, HMRC considers that this will include legal, contractual, regulatory, practical, and operational restrictions, such as:

  • Contractual lock-up agreements.
  • U.S. Securities and Exchange Commission (SEC) transfer restrictions.
  • Situations where it may not be practically possible for transfers to take place, for example where a restricted American Depositary Receipt (ADR) facility (see STSM051010) is not available or otherwise able to be utilised by a transferring shareholder and so no transfers take place until it is possible for the transferor to utilise an unrestricted ADR facility.

As soon as reasonably practicable

While the legislation does not define a set period during which any transfers would be made “as soon as reasonably practicable”, HMRC considers that any transfers made within 4 months of the relevant restrictions having ended would be made “as soon as reasonably practicable”.

No change of beneficial ownership (NCBO)

As noted above, for a transfer to be an exempt listing transfer, one condition is that beneficial ownership of the securities transferred is not affected. This will be judged on a case-by-case basis, depending on the particular fact pattern.

Depositary Receipt NCBO Example

HMRC would not consider that there had been a change of beneficial ownership when:

  • Listco undertakes an initial listing on the NYSE, using ADRs.
  • Existing shareholders in Listco transfer their shares to a depositary receipt issuer.
  • In return, ADSs/ADRs are issued to those shareholders by the depositary receipt issuer.

If, for example, under a separate agreement entered into following the issue of the ADRs, those ADRs are subsequently sold to a third party, that would not impact the NCBO status of the initial transfer to the depositary receipt issuer.

Clearance Service NCBO Example

HMRC would not consider that there had been a change of beneficial ownership when:

  • Listco undertakes an initial direct listing on the Frankfurt Stock Exchange (FSE), with shares issued to a clearance service.
  • Existing shareholders in Listco transfer their shares to a clearance service, which will hold legal title to the shares.
  • In return, the clearance service issues book-entry interests to those existing shareholders in the Listco shares, which can be traded on the FSE.

If, for example, under a separate agreement entered into following the transfer of the shares to the clearance service, the shares are sold to a third party, that would not impact the NCBO status of the initial transfer to the clearance service.

Exempt Listing Instruments

Section 72ZB FA1986 defines an “exempt listing instrument” as being an instrument which transfers relevant securities in the course of qualifying listing arrangements.

The provisions of section 72ZB FA1986 mirror those of section 97AC FA1986 for exempt listing transfers, and the guidance above equally reflects HMRC’s view of how that section should be applied in practice.

However, “relevant securities” includes all loan capital, including exempt loan capital which would fall outside the definition of a chargeable security for SDRT purposes.

Therefore, if a company that is listing its shares for the first time already has listed loan capital, any instruments of transfer that effect the transfer of shares by existing shareholders will not qualify as an “exempt listing instrument” as relevant securities in the company (the loan capital) will already be admitted to listing.