STSM054020 - Depositary receipt and clearance services: calculation of 1.5 per cent Stamp Duty/Stamp Duty Reserve Tax charge: 1.5 per cent Stamp Duty Reserve Tax - calculation

When chargeable securities are transferred (on sale or otherwise than on sale) to a depositary receipt issuer (or to its agent or nominee) or clearance service (or to its agent or nominee), a 1.5% Stamp Duty Reserve Tax (SDRT) charge may arise under section 93(4) FA1986 and section 96(2) FA1986 (rounded to the nearest penny taking any 0.5p as nearest to the next whole penny above, per section 99(13) FA1986).

Where UK securities are transferred on sale to a depositary receipt issuer or to an operator of a clearance service, the 1.5% SDRT charge is to be calculated by reference to the consideration in money or money’s worth paid (section 93(4)(b) FA1986 and section 96 (2)(b) FA1986).

Where UK securities are transferred otherwise than on sale, the 1.5% SDRT charge is calculated by reference to the open market value of the securities at the time of transfer or appropriation to a depositary receipt issuer or to an operator of a clearance service (section 93(4)(c) FA1986 and section 96(2)(c) FA1986).

Background of the 1.5% charge

Following EU (HSBC Holdings plc and Vidacos Nominees Ltd v HMRC) and UK (HSBC Holdings plc and The Bank of New York Mellon v HMRC) court decisions in 2009 and 2012, HMRC recognised that the 1.5% Stamp Duty and SDRT charges on the issue of securities and certain transfers were incompatible with the Capital Duties Directive (Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital, and the predecessor directive, Council Directive 69/335/EEC of 17 July 1969).

Following this, in a 2017 decision the Court of Justice of the European Union ruled in the Air Berlin case that no 1.5% charge applied on the transfer of legal title in chargeable securities in connection with the listing of shares on a stock exchange.

UK legislation providing for the 1.5% charge on transactions of the types covered in these cases was not originally amended as taxpayers were able to rely on the direct effect of EU law up to and including 31 December 2023. However, the changes in the Retained EU Law (Revocation and Reform) Act 2023 meant that this would no longer be the case, so UK legislation was amended to prevent the 1.5% charge being reintroduced for these transactions.

The 1.5% charge on the issue of UK securities into depositary receipt systems and clearance services and on certain transfers was removed from domestic legislation with effect from 1 January 2024. Guidance on these changes can be found at STSM053080 onwards.

Further Information

For the meaning of ‘chargeable securities’, see STSM053030.