HMRC internal manual

Stamp Taxes on Shares Manual

Companies and shareholders: rights issues: Stamp Duty Reserve Tax implications

The principal charge to SDRT applies to agreements to transfer chargeable securities for consideration in money or money’s worth. The definition of ‘chargeable securities’ includes ‘rights to allotments of or to subscribe for, or options to acquire, stocks, shares or loan capital’(FA86/S99(3)). A Provisional Allotment Letter (PAL) or Renounceable Letter of Allotment (RLA) is therefore a chargeable security for SDRT purposes.

There is no charge to SDRT on the issue of a PAL or RLA to the shareholder, because this creates a new right, not a ‘transfer’ of a pre-existing interest, and it is issued ‘nil paid’ so for no consideration.

Where the shareholder takes up the offer, the issue of new securities under the terms of the PAL or RLA also does not come within the principal charge to SDRT because this creates new securities rather than transferring existing ones.

However, if a shareholder chooses not to take up (some or all of) the rights offered under a RLA but instead ‘renounce’ them and sell them on the secondary market, this amounts to an agreement to transfer chargeable securities for consideration.

For the SDRT implications of a rights issue of bearer shares, see STSM067070.