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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 - share reserve Dividend Re-Investment Plan - new issued shares

A Share Reserve Dividend Re-Investment Plan (Share Reserve DRIP) is similar to an optional stock dividend, except that the shareholder typically undertakes an advance “standing order” with the company to take part or all of future dividend payments in the form of newly issued shares rather than cash. Where the shareholder elects to receive dividend payments in the form of new (unregistered) shares under a DRIP, the issuing company or its agent will use the value of the cash dividend foregone to subscribe for an issue of new shares out of the share reserve of the issuing company which are then distributed to the shareholder.

In the situation where a shareholder elects, or a depositary receipt issuer or clearance service 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/2009/16584), 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 to deliver to a depositary receipt issuer or clearance service located anywhere in the world 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).

For details of what is an ‘arrangement’, see STSM053050

Any subsequent appropriation or deposit of a share reserve DRIP, represented by shares in a United Kingdom incorporated company earlier 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).