STSM075030 - Companies and shareholders: company’s purchase of own shares: Treasury shares

Since 1 December 2003, the Companies Act has allowed a listed company to hold repurchased shares ‘in treasury’ instead of cancelling them, subject to certain restrictions. Companies whose shares are dealt in on the Alternative Investment Market (AIM) of the London Stock Exchange are ‘listed’ for this purpose. Treasury shares may then be either cancelled or resold, and can be used to fulfil employee share options and share schemes instead of issuing new shares.

A company is owned by its shareholders, not by itself. A company cannot have rights in respect of its own shares. The rights attaching to treasury shares (rights to vote, for example, or to receive distributions) are suspended and for most tax purposes the shares are treated as having been cancelled.

The 0.5% Stamp Duty charge does not apply to any instrument selling on or transferring treasury shares, owing to paragraph (1)(5) of Schedule 13 to FA1999.

The 0.5% charge to SDRT also does not apply to an agreement to transfer treasury shares held by the company, owing to section 90(7A) FA1986.

Although no 1.5% Stamp Duty or SDRT charge had generally been sought by HMRC on the transfer of treasury shares to a depositary receipt issuer or clearance service, domestic legislation was amended to remove the 1.5% charge on such transfers with effect from 1 January 2024. See STSM053120 for more information.

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.