Collectives: exemptions: exempt investments - interests other than in collective investment schemes - Depositary Interests and non-UK incorporated companies
Where the terms of a collective investment scheme (such as a unit trust or Open-Ended Investment Company (OEIC)) permit investment by the scheme in the holding only of ‘exempt investments’, FA86/S99(5A)(b) provides that no charge to Stamp Duty Reserve Tax (SDRT) arises under FA99/SCH19 or FA86/S87 when units or OEIC shares in the scheme are surrendered or otherwise transferred.
Section 99(5B) Finance Act 1986 provides rules for determining when an investment (other than an interest held in a collective investment scheme) can be regarded as an exempt investment.
Investments in Depositary Interests
Depositary Interests are UK registered securities that enable trading in non-United Kingdom (UK) incorporated and registered company shares to be undertaken and settled in the UK in electronic/paperless form (such as within the CREST system operated by Euroclear UK & Ireland Ltd).
A UK depositary interest in foreign securities is a chargeable security for the purposes of a charge to SDRT. The Stamp Duty Reserve Tax (UK Depositary Interests in Foreign Securities) Regulations 1999 (FA99/S119 & SI 1999/2383 (as amended by SI 2000/1871 and SI 2001/3779)), however, afford relief from SDRT if, and only if, all of the qualifying conditions detailed in the regulations are fulfilled.
Provided that all of the qualifying relief conditions are met, the holding of a depositary interest can be classified as an exempt investment for FA99/SCH19 purposes.
Shares in a non-UK incorporated and registered company and depositary interests of the same class of security in the underlying company are generally identified by a common ISIN (International Securities Identification Number), so care is required to ensure that holdings are correctly classified.
Investment in non-UK incorporated companies with a UK register
Securities issued or raised by a company incorporated outside the UK that are registered in a register that is kept in the UK by the company are ‘chargeable securities’ for SDRT purposes. Accordingly, interests in, or other rights in, such an investment held by a fund rank as non-exempt investments for the purposes of FA99/SCH19.
Conversely, an investment held by a fund in shares in a non-UK incorporated UK which does not hold its share register in the UK is accepted by HM Revenue & Customs as being an exempt investment as such an investment is not of a type that would generally attract stamp duty or SDRT on its transfer.
Cash or other funds held for day to day management are not regarded as investments (FA86/S99(5B)(d)).
See STSM101010 for the meaning of a collective investment scheme.
See STSM101020 for the meaning of a unit trust.
See STSM101050 for the meaning of an open-ended investment company.
See STSM021220 for information on convertible loan capital.