STSM101065 - Introduction to Collective Investment Schemes: Exchange Traded Fund: Stamp Duty and SDRT

Purchases by an ETF

If an ETF directly purchases chargeable securities/ stock or marketable securities, a 0.5% SDRT charge under section 87 FA1986 or Stamp Duty charge under schedule 13 FA1999 will arise in the normal way.

Contributions to an ETF

An authorised participant (AP) may "create" ETF shares, by purchasing a "basket" of the relevant underlying securities and contributing those to the ETF in return for the issue of the relevant number of ETF shares.

As an ETF is a body corporate, beneficial ownership of the underlying assets is held by the ETF itself. Therefore, any contribution of securities to a new or existing ETF will give rise to a charge to SDRT or Stamp Duty. See STSM107020 and STSM107030 for more information on in-specie contributions - as ETFs are OEICs the treatment described for OEICs will also apply to ETFs.

Redemptions of ETF shares

An AP may also redeem ETF shares, by surrendering them to the ETF in return for the distribution of the relevant underlying securities held by the ETF.

Where the in-specie redemption takes place on a pro rata basis, then no charge should arise. See STSM105105 for more information on in-specie redemptions - as ETFs are OEICs the treatment described for OEICs will also apply to ETFs.

Transfers of ETF shares

Under SI 2014/911 (the Stamp Duty and Stamp Duty Reserve Tax (Exchange Traded Funds) (Exemption) Regulations 2014):

  • An agreement to transfer units in an ETF is exempt from SDRT due to Regulation 3; 

and

  • An instrument which transfers units in an exchange traded fund is not subject to Stamp Duty due to Regulation 4

These exemptions apply to ETFs which fall within the definition of an ETF in Regulation 5 (see STSM101060).

Whilst the legislation refers to ETF units rather than ETF shares, the definition of “units” is taken from section 237(2) FSMA 2000, which states that “units” means the rights or interests (however described) of the participants in a collective investment scheme. 

ETF shares given as consideration

Where ETF shares form the whole, or any part, of the consideration for the sale and transfer of stock or marketable securities, or an interest in a partnership holding stocks or marketable securities, the ETF shares are regarded as chargeable consideration for Stamp Duty and 'money's worth' for SDRT charging purposes

Transfers between ETF APs and investors

As noted in STSM101060, investors cannot deal directly with an ETF, and so use the services of an AP.  

Any resulting transfers of chargeable securities to or from an AP and an investor are subject to SDRT in the normal way, including the applicability of any relevant reliefs (for example intermediary relief) or exemptions.