On the 14 September 2023, HM Revenue and Customs (HMRC) published draft legislation, of particular interest to UK companies listing (or who have listed) securities on non-UK exchanges, providing for the removal of the 1.5% charge to UK stamp duty and stamp duty reserve tax (SDRT) on certain issues and transfers. Stamp duty is charged on transfers of equity and certain debt securities issued by UK companies while SDRT is imposed on agreements to transfer certain securities, known as chargeable securities, to companies incorporated in the United Kingdom (or in non-UK companies where the register is maintained in the UK). Both stamp duty and SDRT are typically charged on transfers of chargeable securities at a rate of 0.5%. Where securities are issued or transferred to an issuer of depository receipts (such as American depositary receipts) or into a clearing service, then Stamp Duty and/or SDRT is chargeable at a rate of 1.5%. No additional stamp duty or SDRT is then chargeable on top of the transfers of the depository receipts or within that clearing system.
In the years 2009 and 2012, the European Court of Justice (ECJ) found that this 1.5% charge on ‘the issue and capital-raising transfers of UK chargeable securities’ was incompatible with the EU Capital Duties Directive, leading HMRC to confirm that the 1.5% stamp duty and SDRT charges would not be applied to such transactions. This was, however, by way of statements of practice and not through legislation. Following the UK’s exit from the European Union, the non-application of the 1.5% stamp duty and SDRT charges continued through Section 4 of the European Union (Withdrawal) Act 2018. However, as the Retained EU Law (Revocation and Reform) Act 2023 made it that certain EU-derived laws would be revoked, the 1.5% stamp duty and SDRT charges were set to be reimposed on 1 January 2024, intentionally or otherwise. Sensing such a reimposition would detriment the UK’s international competitiveness, this consultation was put forward.
If HMRC’s new draft legislation is enacted, the 1.5% charge on Stamp Duty and SDRT will be removed with respect to the issue of UK securities to a depositary receipt system or to a clearance service operator, effective from 1 January 2024. The charge will also be removed on the transfer of UK securities into depositary receipt systems and clearance services where the transfer is made in the course of capital-raising arrangements. Arrangements are deemed ‘capital-raising arrangements’ when securities are issued by a company for the explicit purpose of raising new capital. As with most legislation there are areas open to interpretation. For example, the term ‘new capital’ isn’t defined, and whilst HMRC have historically interpreted the concept of capital raising quite broadly, it is unclear whether this will continue to be the case. However, given that it has not always be entirely clear whether a given transfer or issue could be said to have been in the course of capital-raising arrangements (as is currently the case), it is a welcome development, giving greater statutory footing and clarity for businesses, especially those listing securities (or those who have listed securities) on non-UK exchanges.
As it stands, the charging provisions look set to remain and apply to the transfers of shares onto clearance or depository services where there is no raising of capital, and so care may still be needed when moving existing shares in such a manner.
If you wish to discuss these topics, please contact:
Hansuke Consulting
