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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 - optional stock dividend paid with registered shares

A shareholder may have the right to elect, under the terms of a company’s Articles of Association, to take all, or part, of a dividend payment in the form of additional registered shares in the company, rather than cash. Where the shareholder elects to receive a dividend payment in shares, the issuing company or its agent will arrange that the value of the cash forgone is used to purchase or issue further registered shares in the company which are then distributed to the shareholder.

In the situation where a shareholder elects, or a depositary receipt or clearance service system elects on behalf of an account holder, to receive a dividend in the form of registered shares in a United Kingdom incorporated company which are to be simultaneously delivered to a depositary receipt issuer or clearance service, a 1.5 per cent stamp duty or SDRT charge will arise. The charge is calculated under the provisions of FA86/S67 (2), FA86/S70 (2), FA86/S93 (4)(b) or FA86/S96 (2)(b), with the amount of cash forgone by the holder in electing to receive shares constituting consideration for those shares.

Any subsequent trading or renunciation of dividend shares in a United Kingdom incorporated company with a specific intention of delivering them to a depositary receipt or clearance service system will also give rise to a 1.5 per cent stamp duty or SDRT charge by virtue of FA86/S67 (2), FA86/S70 (2), FA86/S93 (4)(b) or FA86/S96 (2)(b).

In the situation where dividend registered shares in a United Kingdom incorporated company are purchased, and an ‘arrangement’ is entered into before or at the time of the purchase, to deliver such securities to a depositary receipt issuer or clearance service, the 0.5 per cent SDRT charge that would otherwise apply to the purchase under FA86/S87 is cancelled by the provisions of FA86/90 (4) and replaced by the 1.5 per cent SDRT charge under FA86/S93 or FA86/S96.

Any subsequent appropriation or deposit of an optional stock dividend, represented by shares in a United Kingdom incorporated company previously received by a shareholder, to a depositary receipt issuer or clearance service is subject to a 1.5 per cent charge, calculated by reference to the market value of the securities at the time of appropriation.

See FA86/S67 (3) and, FA86/S70 (3), FA86/S93 (4)(c) and FA86/S96 (2)(c).