Depositary receipt and clearance services: scope of 1.5 per cent charge: Stamp Duty Reserve Tax - bearer securities
While sterling denominated bearer securities issued by a United Kingdom company are generally exempt from Stamp Duty Reserve Tax (SDRT), a 1.5 per cent SDRT charge can arise when a renounceable letter of allotment or acceptance (where the rights under the letter are renounceable not later than six months after its issue) to subscribe for bearer shares, is delivered to a depositary receipt or clearance service system (FA86/S95(2)(a) and FA86/S97(3)(a)).
A shareholder, to whom further shares have been allotted under the terms of a company offer for sale, may decide to deposit the allotment letter (whether nil, partly or fully paid) with a depositary receipt or clearance service system. In this situation, a 1.5 per cent SDRT charge arises, calculated by reference to the market value of the letter at the time of the deposit ( FA86/S93(4)(c) and FA86/S96(2)(c) ).
Alternatively, a shareholder may agree to transfer on sale the rights under an allotment letter or renounceable letter of allotment for consideration in money or money’s worth amount to another person who immediately lodges it with a depositary receipt issuer or clearance service. A 1.5 per cent SDRT charge arises, calculated by reference to the consideration paid in money or money’s worth for the purchase of the rights (FA86/S93(4)(b) and FA86/S96(2)(b)).
Where underlying bearer shares are later issued to a depositary receipt issuer or clearance service which holds the letter of acceptance or allotment, no further SDRT charges arise.
See STSM057030 for further guidance on the issue or transfer of a non-sterling denominated bearer instrument by a United Kingdom company (which does not raise new capital, or is not issued in exchange for such an instrument) to a depositary receipt issuer or clearance service.
See STSM055030 for the meaning of an allotment letter and a renounceable letter of allotment.