HM Revenue and Customs (HMRC) published draft legislation on 14 September for inclusion in Finance Bill 2023-24, which will remove the 1.5% charge to UK stamp duty and stamp duty reserve tax (SDRT) with respect to the issue of UK securities into depositary receipt systems and clearance services, as well as the transfer of UK securities into depositary receipt systems and clearance services where the transfer is made in the course of capital-raising arrangements.
The measures formalise current practice in the United Kingdom, adopted following European Court of Justice (ECJ) decisions in 2009 and 2012, and if enacted will take effect from 1 January 2024. This will be of particular interest to UK companies listing (or who have listed) securities on non-UK exchanges.
Stamp duty is charged on transfers of equity and certain debt securities issued by UK companies. SDRT is imposed on agreements to transfer certain securities (known as chargeable securities) in 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 generally charged only on transfers of such securities at a rate of 0.5%, but where securities are issued or transferred to an issuer of depository receipts (such as american depositary receipts) or into a clearing service stamp duty and/or SDRT is chargeable at a rate of 1.5%. This 1.5% charge is often referred to as a “season ticket,” with no additional stamp duty or SDRT chargeable on transfers of the depository receipts or within that clearing system.
Following ECJ and UK court decisions in 2009 and 2012, the 1.5% charge on the issue and capital-raising transfers of UK chargeable securities were found to be incompatible with the EU Capital Duties Directive (see our 8 October 2009 LawFlash), and HMRC confirmed 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 departure 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, the Retained EU Law (Revocation and Reform) Act 2023 would have had the effect of revoking certain EU-derived laws and ending the supremacy of EU law in the United Kingdom at the end of 2023—as a result of which the 1.5% stamp duty and SDRT charges would be reimposed. It was previously unclear if this change of law was intentional.
The draft legislation proposed by HMRC will, if enacted, provide legislative certainty that the 1.5% stamp duty and SDRT charges on the issues and transfers referred to above would not be reimposed from 1 January 2024 and seeks to maintain the position that has been in place since the 2009 and 2012 decisions. It expressly removes the 1.5% SDRT charge on the issue of UK chargeable securities to a depositary or to a clearance service operator.
The draft legislation also provides for an exclusion from stamp duty and SDRT where an instrument of transfer is an “exempt capital raising instrument” (applicable for stamp duty) and for an “exempt capital raising transfer” (applicable for SDRT).
The definitions of “an exempt capital raising instrument” and “an exempt capital raising transfer” are aligned and require either of two conditions to be met, which are as follows.
For these purposes, arrangements will be “capital-raising arrangements” where securities are issued by a company for the purpose of raising new capital.
It may not always be entirely clear whether a given transfer or issue can be said to be in the course of capital-raising arrangements (as is currently the case), but nevertheless this is a welcome development, as it will give a statutory footing (and so more certainty for businesses) to the position that the 1.5% stamp duty or SDRT charge does not apply to the issue of UK securities to depositary receipt systems and clearance services, or to transfers of UK securities as part of a capital-raising arrangement into depositary receipt systems and clearance services. This should be particularly welcome to UK companies which are listing securities (or have listed securities) on non-UK exchanges.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: