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HMRC internal manual

Stamp Taxes on Shares Manual

Scope of Stamp Duty Reserve Tax (SDRT): relationship with stamp duty

Stamp Duty Reserve Tax (SDRT) captures certain transactions that are outside the scope of Stamp Duty. Its scope is broader both in terms of the transactions and types of consideration and because it has fewer exemptions and exceptions.

Chargeable transactions

Stamp Duty is a levy on a written instrument or other document transferring stocks and marketable securities on sale. Stamp Duty’s scope does not extend to ‘paperless’ transactions.

SDRT is a tax on an agreements to transfer dematerialised (i.e. uncertificated) shares in electronic settlement systems, such as CREST (operated by EuroClear UK & Ireland Ltd), where there is no physical instrument of transfer. A SDRT charge can also arise on an agreement to transfer ‘chargeable securities’ which are settled outside of an electronic settlement system and where no physical instrument or document is required to perfect the transaction.

Chargeable consideration

Ad valorem Stamp Duty is levied  on the transfer on sale of stock or marketable securities where the amount or value of the consideration paid is in the form of cash, debt or other securities.

In contrast, the scope SDRT is wider in that it encompasses consideration in the form of ‘money or money’s worth’ for an agreement to transfer chargeable securities. The value of any non-monetary consideration shall be taken to be the price it might reasonably be expected to fetch on a sale in the open market at the time of the agreement.

Where a transaction is effected by an instrument or other document which is impressed with ad valorem Stamp Duty or is stamped as being relieved from Stamp Duty, this will cancel a SDRT charge that may otherwise arise.

For example, where the consideration for a transfer on sale of stocks or marketable securities is in the form of an issuance of a life policy (and no other consideration), the issue of a life policy is not regarded as chargeable consideration for Stamp Duty purposes. Where an instrument or other document is executed to effect such a transfer, the instrument is exempt from Stamp Duty and this will cancel any liability to SDRT on the agreement to transfer (FA86/S92).

Chargeable securities

In broad terms, while a transfer on sale of ‘stocks or marketable securities’ is liable to Stamp Duty, such securities are also ‘chargeable securities’ for the purposes of a charge to SDRT. Securities transferred which are exempt from Stamp Duty are generally also exempt from SDRT by virtue of FA86/S99(5).

The scope of SDRT ‘chargeable securities’, however, is wider than ‘stocks and marketable securities’ and extends to other types of securities that do not require execution of a paper instrument or document in order for them to be transferred.

Such ‘chargeable securities’ include a transfer of rights to an allotment of, or rights to subscribe for, or rights to an option to acquire shares, stocks and loan capital. For example, a transfer and sale of a renounceable letter of allotment or acceptance will not be subject to Stamp Duty (as no instrument of transfer is required to be executed) but is a ‘chargeable security’ for SDRT (FA86/S99(3)(c)). Renounceable letters of acceptance are rights to securities which are themselves chargeable and, as such, qualify as chargeable securities in their own right.