STSM117100 - Derivatives: introduction to futures and forwards: settlement of a futures or forwards contract

Stamp Duty & Stamp Duty Reserve Tax (SDRT)

Futures contract

If the holder (i.e. the buyer) of the:

  • Futures contract (relating to ‘stocks and marketable securities’ that is capable only of physical delivery of securities upon settlement of the futures contract) does not trade the future on the secondary market (see STSM117090), the 0.5% SDRT charge which may already have arisen and been paid on the original agreement (i.e. the futures contract) can be cancelled and refunded (by virtue of section 92 Finance Act 1986) on settlement of the contract.

This may occur if 0.5% ad valorem Stamp Duty paid and impressed on a executed instrument (i.e. stock transfer form), that transfers the underlying securities.

In this respect, where Stamp Duty and SDRT is paid, any SDRT reclaim must be sent to HMRC within 6 years from the date of the futures contract (s92 FA86).

  • If however the futures contract is secondary traded, the 0.5%SDRT arising on the original futures contract issue remains in place, as do other 0.5% SDRT charges on subsequent secondary trading of the future.

The 0.5% Stamp Duty payable on the eventual transfer will not cancel any SDRT charges arising in respect of secondary trading of the future.

Where no instrument of transfer is or will be executed in respect of the transfer of securities following settlement of the futures contract, the 0.5% SDRT charge (under s87 FA86) which may have arisen on the date when the futures contract is entered into becomes final.

If the holder (i.e. the buyer) of the:
  • Forwards contract (relating to ‘stocks and marketable securities’ that is capable only of physical delivery of shares upon settlement of the forwards contract);

Completes and executes an instrument of transfer to settle the transaction upon which 0.5% ad valorem stamp duty is paid and impressed, then

The 0.5% SDRT charge which may already have arisen and paid on the original agreement (i.e. the forwards contract), can be cancelled and refund (by virtue of s92 FA86).

In this respect, where Stamp Duty and SDRT are both paid, any SDRT refund claim mist be made to HMRC within 6 years beginning from the date of the forwards contract (s92 FA86).

Where no instrument of transfer is, or will be, executed in respect of the transfer of securities following settlement of the forwards contract, then the 0.5% SDRT charge (under s87 FA86) which may have arisen and been paid on the agreement to transfer ‘chargeable securities’ on the ‘relevant day’ when the forwards contract is entered into becomes final.

Higher 1.5% Stamp Duty and SDRT rate of charge

When UK securiteis are transferred (on sale) to a depositary receipt issuer (or to its agent or nominee)or clearance service (or to its agent or nominee), a Stamp Duty or SDRT charge can arisse inder 67(2), 70(2), 93(4) and 96(2) FA86.

Where this happens, the 1.5% Stamp Duty or SDRT charge is calculated by reference to the amount or value of the consideration.

See STSM012040 for the meaning of ‘relevant day’.

See STSM031090 for the meaning of ‘chargeable securities’

See STSM02104 for the meaning of ‘stocks or marketable securities’