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HMRC internal manual

Stamp Taxes on Shares Manual

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HM Revenue & Customs
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Depositary receipt and clearance services: scope of 1.5 per cent charge: Stamp Duty Reserve Tax - issue of a partly/ fully paid allotment letter or renounceable letter of allotment

Where, under the terms of a company share offer, a shareholder decides to take up the rights under a nil paid Allotment Letter (AL) or Renounceable Letter of Allotment (RLA) for further new shares, he may pay all or part of the subscription/purchase price on or before the offer expires.

In this situation, the issue by a United Kingdom incorporated company of a partly paid or fully paid AL or RLA deposited with a depositary receipt issuer or a clearance service at the request of the shareholder, is not subject to a 1.5 per cent Stamp Duty Reserve Tax (SDRT) charge.

This is because following the decisions by the European Court of Justice (ECJ) in October 2009 in the case of HSBC Holdings PLC and Vidacos Nominees Ltd v Commissioners for HM Revenue & Customs (C569/07), and the First-Tier Tribunal (Tax Chamber) in March 2012 in the case of HSBC Holdings PLC and the Bank of New York Mellon Corporation v Commissioners for HM Revenue & Customs(TC/2009/16584), HM Revenue & Customs (HMRC) accept that the charging of 1.5 per cent on UK securities issued (in the form of a partly or fully paid AL or RLA) is incompatible with European Union law. In these circumstances, HMRC do not seek to collect 1.5 per cent on UK securities issued to a depositary receipt issuer or to a clearance service located anywhere in the world.

At the end of the renunciation period, the issue of shares to a depositary receipt issuer or clearance service located anywhere in the world (that holds a partly or fully paid AL or RLA) is also outside the scope of a 1.5 per cent SDRT charge for the reasons outlined above.

Where a person takes up a nil, partly or fully paid AL or RLA entitlement on shares which is held outside a depositary receipt or clearance service system, and later decides to transfer the underlying securities to a depositary receipt issuer or clearance service, a 1.5 per cent charge will arise, calculated by reference to the market value of the securities at the time of appropriation by virtue of FA86/S93 (4)(c) and FA86/S96 (2)(c).

See STSM055030 for the meaning of an allotment letter and a renounceable letter of allotment.