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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 share reserve stock dividend paid with an issue of shares

An optional share reserve stock/cash dividend represents an arrangement whereby a shareholder may elect under the terms of a United Kingdom incorporated company’s Articles of Association to take part or all of a dividend payment in newly issued shares rather than cash. Where the shareholder elects to receive the dividend payment in shares, the value of the cash dividend foregone will be used to subscribe for an issue of new shares out of the share reserve of the company that are then distributed to the shareholder as a share reserve stock dividend.

In the situation where a shareholder elects, or a depositary receipt or clearance service system located anywhere in the world elects on behalf of an account holder, to receive a dividend in the form of newly issued shares in a United Kingdom incorporated company which are to be simultaneously delivered to a depositary receipt issuer or clearance service, no 1.5 per cent SDRT charge will arise.

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/2009/165484), HM Revenue & Customs (HMRC) accept that the charging of 1.5 per cent on share issues is incompatible with European Union law. In these circumstances, HMRC do not seek to collect 1.5 per cent on UK company share issues to a depositary receipt issuer or to a clearance service.

Any subsequent trading or renunciation of dividend shares in a United Kingdom incorporated company with a specific intention of simultaneously delivering them to a depositary receipt issuer or clearance service may, however, 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 issued shares in a United Kingdom incorporated company are later traded and the registered shares are transferred, 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 under FA86/S87 is cancelled by the provisions of FA86/90 (4) and offset by the 1.5 per cent SDRT accountability that arises under FA86/S93 or FA86/S96.

Any subsequent appropriation or deposit of an optional share reserve stock dividend, represented by shares in a United Kingdom incorporated company previously received by a shareholder, to a depositary bank 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 by virtue of FA86/S67 (3) and, FA86/S70 (3), FA86/S93 (4)(c) and FA86/S96 (2)(c).