STSM142020 - Stamp duty and SDRT Administration: SDRT Administration: residual securities

Residual Securities

There are some transactions for which accounting for Stamp Duty Reserve Tax (SDRT) through CREST is not possible or proves awkward. Deals in residual securities (shares without an exchange listing) are the most obvious example (see STSM131050 and STSM132050).

Share trading in a residual security will normally be settled by the completion of an instrument of transfer (e.g. stock transfer form) on which Stamp Duty is chargeable. The transfer on sale of chargeable securities also represents an ‘agreement to transfer’ for the purposes of a charge to SDRT, but the SDRT charge is cancelled when Stamp Duty is paid (see STSM142040) and the instrument is duly stamped (see STSM141020 and STSM141030).

To ease the administrative burden of having to account for SDRT on or before the accountable date, only for the tax to be refunded when a stock transfer form is completed and Stamp Duty paid, HMRC has published a practice on the subject of residual securities. This practice was introduced in October 1998 (Issue 37 of Tax Bulletin) and reiterated in October 1999 (Issue 43 of Tax Bulletin), from which the following is reproduced:

“Where a stock transfer form relating to residual securities (securities that cannot be settled in CREST) is stamped within 60 days of the date of the transaction, it remains the case that the Stamp Office will not seek interest on the SDRT in the meantime and no notice need be given. However, should a stock transfer form not in fact be duly stamped within this time then interest on the unpaid SDRT will still run from the accountable date. In addition, if a notice was not delivered by that date the penalties described above will apply.

It should be noted here, and more generally, that if a stock transfer form is presented for stamping more than 30 days after it is executed, and the duty is paid late, then interest will run on the Stamp Duty and there may be a penalty for late stamping.”