Modernisation of the Stamp Taxes on Shares Framework: 1.5% charge

Question 1

Summary

Accepted Answer

Subject of this consultation

This consultation seeks views on proposals to modernise the 1.5% rate aspects of the Stamp Taxes on Shares (STS) framework, which encompasses both Stamp Duty and Stamp Duty Reserve Tax (SDRT).

Scope of this consultation

HM Revenue and Customs (HMRC) is consulting on aspects of the 1.5% STS charge with a focus on reducing unnecessary legislation and providing better clarity.

Who should read this

Taxpayers, investors, businesses, tax advisors, practitioners and their representative bodies, tax lawyers and their representative bodies, stockbrokers, stock traders, stock markets and anyone that is involved with or has an interest in the buying and selling of securities, particularly where there is an interaction with depositary receipt issuers and clearance services.

Duration

12 weeks, starting on 28 April 2025 and ending on 21 July 2025.

Lead official

The lead officials are A Lockyer and G Lowton of HMRC.

How to respond or enquire about this consultation

Any responses to or queries about this consultation should be sent by email to sts.consultation@hmrc.gov.uk or by post to:

Stamp Taxes on Shares Team
HM Revenue and Customs
Room 3/63
100 Parliament Street
London
SW1A 2BQ

Additional ways to be involved

HMRC also welcomes discussions with interested parties. If you would like to meet with policy officials, please contact HMRC using the details above.

After the consultation

After the consultation a summary of responses will be published.

Getting to this stage

This consultation follows on from a consultation issued in 2023 that sought feedback on proposals for the modernisation of Stamp Taxes on Shares.

Previous engagement

The Office for Tax Simplification issued a report in 2017, in which it recommended the modernisation and digitalisation of Stamp Duty. HMRC consulted on the consideration rules for Stamp Taxes on Shares in 2018. In 2020 HMRC published a Call for Evidence on the guiding design principles and potential options for modernising the Stamp Taxes on Shares Framework. In November 2021 a joint HMRC and industry Working Group was established to inform the proposals outlined in both the consultation issued in 2023 and this consultation.

Question 2

1.  Introduction

Accepted Answer

Background to Stamp Duty and Stamp Duty Reserve Tax (SDRT)

Stamp Duty is a charge on paper instruments that transfer the beneficial interest in ‘stock’, ‘marketable securities’ or interests in partnerships where the partnership assets include stock or marketable securities. It is also charged on instruments that transfer land if the transfer took place prior to 1 December 2003, or transfers at any point further to an agreement entered into on or before 10 July 2003. Stamp Duty is mainly charged on a specific form known as a stock transfer form (STF), but is also charged on any other instrument that transfers the beneficial interest in ‘stock’ or ‘marketable securities’.

SDRT was introduced on agreements to transfer uncertificated (paperless) shares and other securities in 1986 and, with the growth of paperless transactions, SDRT rather than Stamp Duty now applies to most transfers of shares and securities. It is charged on agreements to transfer ‘chargeable securities’. Most securities are settled through the CREST settlement system and are known as ‘dematerialised’ as they are held in electronic rather than ‘materialised’ paper form. See Annex A for definitions of ‘stock’ and ‘marketable securities’ and ‘chargeable securities’, and for examples of instruments other than STFs.

Stamp Duty is normally charged at 0.5% of the amount or value of the consideration and is rounded up to the nearest £5. SDRT is also normally charged at 0.5% but is rounded up to the nearest 1p. A higher 1.5% Stamp Duty or SDRT rate can apply in certain circumstances where shares or other securities are transferred overseas.

A charge to 1.5% Stamp Duty may arise in respect of transfers (on sale or otherwise than on sale) of relevant securities of a company incorporated in the United Kingdom (UK) to a person (or his agent or nominee) whose business is exclusively that of holding securities for a bank’s depositary receipt business, or for a clearance service or to certain other persons specified by Treasury Order (although no such orders have to date been made). No 1.5% charge applies to shares that are issued to a depositary receipt issuer or clearance service.

A charge to 1.5% SDRT may arise where in pursuance of an arrangement where chargeable securities of a company incorporated in the UK are transferred (on sale or otherwise than on sale), to a depositary receipt issuer (or his nominee); and a depositary receipt is issued or is to be issued (section 93 FA1986). A charge to 1.5% SDRT may arise where chargeable securities of a company incorporated in the UK are transferred (on sale or otherwise on sale) to a clearance service (or its nominee) for the provision of clearing services (section 96 FA1986).

SDRT is not payable where either a document has been stamped for Stamp Duty purposes or is exempt from Stamp Duty.

Stamp Duty does not normally apply where the consideration for shares is £1,000 or less. An exemption is claimed by self-certifying. This exemption prevents the administrative burden of having to notify low-value paper transactions.

Policy background to the 1.5% Charge

The 1.5% higher rate charge applies to transfers of UK securities overseas, namely transfers to a clearance service or their nominee and transfers to a depository receipt issuer or their nominee. Subsequent transfers within the clearance service or depository receipt issuer system do not generally attract an STS charge, leading to the 1.5% charge often being referred to as a ‘season ticket’ or being the ‘price for entry’ into a clearance service or depository receipt issuer system.

In line with the general 0.5% charge the higher rate charge doesn’t apply to issues of securities. It also doesn’t apply to certain transfers related to capital raising or listing arrangements.

Once deposited in a clearance service or depository receipt issuer system, securities can be traded without a change in the underlying company share register, as the legal title of the securities remains in the name of the clearance service or depository receipt issuer or that of its nominee.

The project so far

Following the 2017 OTS report, the then-government conducted an initial consultation on consideration rules for STS which concluded that changing a single aspect of the regime would be ineffective without considering the STS Framework as a whole. It was within this context that HMRC then subsequently issued a Call for Evidence in 2020, to explore potential guiding design principles and options for the modernisation of STS.

In its response to the Call for Evidence, the government recognised the importance of 3 guiding principles, which would inform further work in this area. These were:

simplicity
ease of use
clarity and certainty

In November 2021, HMRC established an industry Working Group, with which further extensive consideration was given to the shape of possible modernisation reforms. The 2023 consultation document built on those discussions, by seeking formal views from all interested parties on the resulting proposals for the 0.5% charge.

As part of the overall modernisation agenda the government is considering feedback received on the 1.5% charge. Changes were made to legislation for the 1.5% charge applying from 1 January 2024 due to EU law no longer having effect on the application of the domestic legislation after 31 December 2023. This included:

removal of the 1.5% charge on issues of chargeable securities to depository receipt issuers and clearance services
no 1.5% charge arising on exempt capital raising transfers and exempt capital raising instruments
no 1.5% charge arising on an exempt listing transfer or an exempt listing instrument
the introduction of a specific exemption from the 1.5% charge for Treasury shares transferred to a clearance service or depository receipt issuer
removal of the 1.5% charge on the issue of bearer instruments

The focus of this consultation is around the principles for this project of simplicity, ease of use and clarity. The government are seeking views on how to ensure that future legislation and guidance for the 1.5% charge is as clear and easy to understand as possible.

The STS modernisation project is looking at ways to update and consolidate the legislative framework to ensure that the provisions are more accessible. Meanwhile, the government is mindful of the need to avoid unnecessary disruption; as such, familiar concepts from the existing regimes will be used where appropriate.

Question 3

2.  Depository receipt issuers and clearance services

Accepted Answer

Depository receipts

Feedback we received has questioned whether depository receipts that are not issued as paper instruments fall outside the definition of a depositary receipt, and so the 1.5% charge. The government’s view, in Depositary receipt and clearance services (STSM051010) guidance, is that depositary receipts issued in either electronic book-entry or physical form fall within the definition of a ‘depositary receipt’ for the purposes of the definitions under sections 69(1), 94(1) and 99(7) Finance Act 1986.

The government is keen that any new legislation is as clear on this point as possible and propose not specifying the format of any receipt in order to remove any doubt that it can encompass physical or digital receipts or any other format that may come along in the future.

Question 1: Do you agree that the format of any depository receipt should not be specified in order to account for both paper, digital and any future format that they may take? If not, how do you think the government should account for the different types of receipt and futureproof the legislation as far as is possible?

Market value rules

The market value rules in relation to connected persons are laid out in sections 47, 47A, 48 and 48A of Finance Act 2019. Feedback received has suggested that there is a lack of clarity about how these rules work in relation to clearance service and depository receipt systems.

The connected persons market value rules in Finance Act 2019 apply to both the 0.5% charge and the 1.5% charge. However, there are market value rules that only apply to the 1.5% charge at sections 67, 70, 93 and 96 of Finance Act 1986. These are transfers otherwise than on sale to clearance services or depository receipt issuers and transfers to a clearance service or depository receipt issuer as a result of the exercise of an option.

The government intends to keep the connected persons market value rules and the market value rules which relate specifically to the 1.5% charge, but propose making the application of them clearer if possible in legislation and guidance.

Question 2: Do you agree that the application of these rules could be made clearer in any single tax? If so, how would you suggest this could be achieved?

Notifications

There are requirements to notify within the legislation at sections 68(3) and 71(3) of Finance Act 1986; these are separated out as requirements for depository receipts and clearance services. Feedback received has suggested that these notification requirements could lead to duplicated reporting to HMRC by the business having to notify for clearance services and depository receipt issuers. The government considers this to be necessary reporting, ensuring that HMRC can become aware both of depository receipt systems that were previously not known to it, and where a business places shares into a clearance system for the first time. However, the government is open to making it clear that if a transaction has been notified to HMRC there does not need to be a second notification of the same transfer.

Question 3: Do you consider that the notification requirements outlined have the potential to lead to double reporting to HMRC? If so, what would you change to ensure full coverage while removing the potential for double reporting?

Bearer instruments

The 1.5% regime includes a charge on the transfer of bearer instruments in schedule 15 to Finance Act 1999. Bearer shares were abolished in 2015 and gradually replaced with non-bearer shares to take them out of circulation. Bearer debt instruments were not abolished so can still be used today. There is little to no STS revenue raised from bearer debt instruments; this may be because they qualify for the loan capital exemption. The government considers the charge on bearer instruments to be unnecessary given that they are unlikely to be subject to STS and believes that sufficient anti-avoidance measures can cover any that should be subject to STS. The government proposes removing the charge to bearer instruments from any new legislation.

Question 4: Do you agree that a charge for bearer instruments is unnecessary in a single tax? If not, can you outline your thinking? How might removing the charge open up routes to avoidance?

Paired shares

Paired shares are stocks of 2 separate companies, under the same management, that are traded as a single security and currently feature within the legislation. Feedback received has indicated that paired shares are no longer a feature of the market. Assuming that paired shares are no longer a feature of the market and there are no potential avoidance avenues that cannot be covered by anti-avoidance legislation, the government proposes excluding reference to them from any new legislation.

Question 5: Are paired shares still a feature of the market or likely to be used in future? If not, are there any risks (such as avoidance) attached to removing references to paired shares from legislation?

Instalment payments

Current legislation includes provisions at sections 93 and 96 of Finance Act 1986 that outline the tax position where shares are bought and paid for in instalments. Feedback has suggested that these provisions are not used, unlikely to be used in the future, and that they are not very clear. The government is considering whether these provisions should be removed from any new legislation.

Question 6: Are the provisions on instalments still necessary? If not, have you known them to be used or do you think they will be used in the future? How would you make these provisions clearer or easier to understand in any new legislation?

Liable and accountable persons

Within the 1.5% regime, the depository receipt issuer or clearance service is both the liable and accountable person for STS purposes. Some feedback has requested a change to this position. The government considers there to be no reason why the transferee could not be the liable person, and the depository receipt issuer or clearance service the accountable person. The government notes the need to ensure when legislating that where there is no change of beneficial owner the transaction is still captured. The government considers that it would likely be useful for depository receipt issuers and clearance services to be able to point to the transferee’s liability when explaining the charges they are levying for the transaction.

The government proposes bringing the liable and accountable person in line with the liable and accountable person concept currently in SDRT so the transferee is the liable person and the depository receipt issuer or clearance service is the accountable person.

Question 7: Do you agree with the proposal to have the transferee as the liable person with the depository receipt issuer or clearance service as the accountable person? Are there any alternative approaches that you think the government should consider?

General analysis

The government would like to better understand the perspectives of shareholders and businesses on the benefits or otherwise of transferring securities to a depository receipt issuer or clearance service.

Question 8: What are the advantages and disadvantages of transferring securities to a depository receipt issuer or clearance service?

Question 4

3.  Assessment of impacts

Accepted Answer

Summary of impacts

Year	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
Exchequer impact (£m)	+/-	+/-	+/-	+/-	+/-	+/-

Exchequer impact assessment

The full Exchequer impact will be worked up as the decisions on which policy proposals are taken forward are confirmed.

Impacts	Comment
Economic impact	The economic impacts will be identified following consultation and final design of the measure. If the proposals are enacted, this measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families	Any impacts will be identified following consultation and final design of the measure. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts	Any impacts will be identified following consultation and final design of the measure.
Impact on businesses and Civil Society Organisations	Any impacts will be identified following consultation and final design of the measure. The measure is not expected to impact on civil society organisations.
Impact on HMRC or other public sector delivery organisations	Any delivery funding requirements will be assessed following the outcome of the consultation.
Other impacts	Other impacts have been considered and none have been identified.

Question 5

4.  Summary of consultation questions

Accepted Answer