STSM115030 - Derivatives: warrants - stamp implications: exercise of a warrant

Stamp Duty

If a warrant holder decides to take-up rights under the terms of the warrant, then the holder is said to have exercised the warrant. The company that issued the warrant is then obliged to issue new shares upon receipt of subscription payment from the warrent holder.

Where rights under the terms of a share warrant are exercised resulting in new shares being subscribed for and paid by the warrant holder, the issue of new shares is not subject to Stamp Duty.

The reason for this is that new shares vest upon registration in the holder’s name, so no instrument of transfer is required to be completed and executed upon which stamp duty can be assessed.

Stamp Duty Reserve Tax (SDRT)

Similarly, no 0.5%SDRT charge arises whenever rights under the terms of a share warrant are exercised resulting in the issue of new shares to the former warrant holder.

This is because SDRT is a tax on ‘chargeable securities’ (per section99 Finance Act 1986) which are agreed to be transferred (see s87 FA86) rather than on agreements to issue securities.

Higher 1.5% SDRT charge

When chargeable securities are issued to a depositary receipt issue (or to its agent or nominee) or clearance service (or to its agent or nominee), a 1.5% SDRT charge can arise under the provisions of s93(4)(a) and s96(2)(a) FA86, calculated at their price when issued.

Following the decisions by the European Court of Justice (ECJ) in October 2009 in the case of HSBC Holdings PLC and Vidacos Nominees Ltd v Commissioners for HM Revenue & Customs (C569/07). and the First-Tribunal [Tax Chamber] in March 212 in the case of HSBC Holdings PLC and the Bank of New York Mellon Corporation v Commissioners for HM Revenue & Customs (TC/2009/16584), HM Revenue & Customs (HMRC) accept that where shares in a UK incorporated company are issued to a clearance service or to a depositary receipt issuer located anywhere in the world, the imposition of a 1.5% SDRT charge (under s93(4)(a) and s96(2)(a) FA86) is incompatible with European Union law. HMRC therefore no longer seek to collect 1.5% SDRT on issues of UK company shares.

See STSM053030 for the meaning of ‘chargeable securities’