STSM057050 - Depositary receipt and clearance services: exemptions/ reliefs: unsecured loan capital

While a 1.5% Stamp Duty Reserve Tax (SDRT) charge under section 93(1) and 96(1) FA1986 applies in respect of transactions involving chargeable securities that are delivered to a depositary receipt issuer or clearance service, the higher rate charge does not generally arise where the transaction involves loan capital, the transfer of which would be exempt from all stamp duties. See section 99 (5)(a) FA1986.

The 1.5% SDRT charge can be reinstated however where:

  • loan capital carries a right of conversion into shares or other securities, or to the acquisition of shares or other securities including loan capital of the same description (see section 79 (5) FA1986).
  • loan capital carries a right to receive interest above a reasonable commercial return or carries a right on maturity to a capital amount which exceeds what generally is repayable on a similar class of loan capital (see section 79 (6) (a) and (c) FA1986).
  • loan capital carries a right to receive interest the amount of which has been, or will be, determined by reference to the results of, or to any part of, a business or to the value of any property (see section 79 (6) (b) FA1986); and
  • the loan capital is transferred (on sale or otherwise than on sale) to a depositary receipt issuer or clearance service. The 1.5% charge is calculated in accordance with section 93 (4)(b) or (c), or 96 (2)(b)(c) FA1986.

No 1.5% SDRT charge arises on the issue of loan capital to a clearance service or to a depositary receipt issuer anywhere in the world.

Background of the 1.5% charge

Following EU (HSBC Holdings plc and Vidacos Nominees Ltd v HMRC) and UK (HSBC Holdings plc and The Bank of New York Mellon v HMRC) court decisions in 2009 and 2012, HMRC recognised that the 1.5% Stamp Duty and SDRT charges on the issue of securities and certain transfers were incompatible with the Capital Duties Directive (Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital, and the predecessor directive, Council Directive 69/335/EEC of 17 July 1969).

Following this, in a 2017 decision the Court of Justice of the European Union ruled in the Air Berlin case that no 1.5% charge applied on the transfer of legal title in chargeable securities in connection with the listing of shares on a stock exchange.

UK legislation providing for the 1.5% charge on transactions of the types covered in these cases was not originally amended as taxpayers were able to rely on the direct effect of EU law up to and including 31 December 2023. However, the changes in the Retained EU Law (Revocation and Reform) Act 2023 meant that this would no longer be the case, so UK legislation was amended to prevent the 1.5% charge being reintroduced for these transactions.

The 1.5% charge on the issue of UK securities into depositary receipt systems and clearance services and on certain transfers was removed from domestic legislation with effect from 1 January 2024. Guidance on these changes can be found at STSM053080 onwards.

Further Information

STSM071020 explains the meaning of loan capital.

For the meaning of ‘chargeable securities’ for SDRT purposes, see STSM053030.