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HMRC internal manual

Stamp Taxes on Shares Manual

HM Revenue & Customs
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Exemptions and reliefs: reliefs: public issues - underwriting

Where shares are offered for sale to the public it is customary for the company or vendor shareholders to enter into an agreement with a financial institution who agrees to purchase shares not taken up by the public. This underwriting function can in fact be performed by the issuing house sponsoring the offer for sale by agreeing to procure purchasers and to purchase shares for which purchasers cannot be procured. When that condition is satisfied and the number of shares to be taken up by the underwriter is known, the agreement is liable to Stamp Duty Reserve Tax (SDRT) in respect of the shares so purchased.

It is also customary for underwriters to agree with sub-underwriters (sometimes a ‘chain’ of sub-underwriters) to the effect that the latter will take up part of the underwriter’s liability to purchase shares not accepted by the public. No chargeable transaction exists at this stage but when unsold shares have to be taken up by the underwriters and sub-underwriters, then any shares taken up by sub-underwriters may result from a chargeable agreement between the issuing company or vendor shareholders and the sub-underwriter rather than a sub-sale of shares purchased by underwriters for sale on to sub-underwriters.

If registered shares are delivered to underwriters or sub-underwriters, the stamp duty paid on the transfer document will cancel the SDRT charge. If there is no transfer document (for example where the transfer is in an electronic transfer system) then SDRT will remain chargeable. If bonus shares are issued and transferred by means of a renounceable letter of allotment then SDRT will be payable, but the issue of the new shares will not be an agreement to transfer securities and accordingly will not attract SDRT. If an underwriter or sub-underwriter sells shares taken up then that sale will attract SDRT in addition to the charge on the underwriter’s or sub-underwriter’s purchase.