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HMRC internal manual

Stamp Taxes on Shares Manual

Scope of Stamp Duty Reserve Tax (SDRT): chargeable securities - options to acquire and rights to allotment or subscription

The definition of ‘chargeable securities’ also includes certain separate contractual rights or ‘derivatives’ relating to securities.

Rights of allotment/ Rights to subscribe for securities

Companies sometimes raise capital investment by offering existing shareholders the chance to subscribe for new unissued shares.

For example shareholder Y receives a renounceable letter of allotment detailing new shares in Z Ltd which have been allocated to Y for possible subscription. There is no SDRT charge on issue of the letter, as there is no agreement to transfer chargeable securities at this point.

However the rights allotted to Y to subscribe for new Z Ltd shares are chargeable securities. So if Y sells on those rights to subscribe under the allotment to person X, a charge will arise on the agreement transferring those rights.

Options to acquire securities

The issue or grant of an option over underlying chargeable securities is outside the scope of SDRT as there is no agreement to transfer existing proprietary rights over such chargeable securities.

An agreement to transfer rights to an existing option to acquire chargeable securities is a ‘chargeable security’ if the rights to that option are sold on or before expiry or exercise of the option.

In this situation an agreement to transfer rights to an existing option to acquire stocks, shares and certain loan capital can be within the scope of the principal 0.5% SDRT charge if the terms of the option allow only for physical settlement of the underlying chargeable securities upon option exercise, or the option holder has the right to receive physical settlement upon option exercise.

On exercise of an option, the transfer of the underlying chargeable securities is liable to SDRT (or Stamp Duty where a paper instrument is executed completing the transaction) at 0.5%, calculated by reference to the option ‘strike’ price.

A 1.5% SDRT (or Stamp Duty) charge applies where delivery of the underlying securities pursuant to option exercise is to a depositary receipt issuer or clearance service (or to their respective nominees). This is calculated by reference to the higher of the option ‘strike’ price or the market value of the security at the date of transfer.

 

See the glossary for the meaning of proprietary interest.