STSM057090 - Depositary receipt and clearance services: exemptions/reliefs: takeovers (share-for-share exchanges)

Sections 95(3)-(6) and 97 (4)-(7) FA1986 provided exemptions from the 1.5% SDRT charge where a company issued shares as consideration for shares in another company in connection with a merger or takeover.

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).

This meant that where ‘share for share’ exchanges in connection with a company merger or take-over were undertaken, which resulted in an acquiring company (‘company (X)’) issuing securities) in exchange for shares in another company (‘company (Y)’), and the issued securities were issued to a depositary receipt issuer or clearance service, no 1.5% SDRT charge would arise, regardless of whether the conditions of the specific exemption in section 95 or 97 FA1986 were met.

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.

Pursuant to these changes, the exemptions in sections 95(3) to (5) and 97(4) to (6) FA1986 were removed from domestic legislation, as they were no longer required.