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HMRC internal manual

Stamp Taxes on Shares Manual

Derivatives: introduction to options: intermediary relief

Relief from Stamp Duty and Stamp Duty Reserve Tax (SDRT) is available for persons who provide liquidity in the marketplace by being available to buy securities (i.e. stocks and shares) from individuals and other professional corporate bodies.

This includes a person commonly called a Market Maker, who is obliged to deal when requested as they cannot refuse a securities transaction. Stamp Duty and SDRT relief are available on securities ac2quires by Market Makers and to other persons approved by HM Revenue & Customs (HMRC) who meet the conditions of being an ‘intermediary’ eligible for relief on all their securities.

The stamp relief is also extended to persons who deal exclusively in writing derivative contracts such as options, futures, forwards, warrants, covered warrants, and contracts for differences, and so provide an accessible derivative trading market place for investors. The name for a person that provides market liquidity is ’intermediary’.

The relevant legislation at section 80A Finance Act 1986 (Stamp Duty) and s88FA86 (SDRT)  provides that:

  • no Stamp Duty is payable on an instrument which transfers ‘stocks or marketable’ securites to an intermediary; and
  • SDRT is chargeable on an agreement to transfer ‘chargeable securities’ to an intermediary.

A member of a regulated market, multilateral trading facility (MTF), recognised foreign exchange, or recognised foreign options exchange who carries on a business of writing and dealing in options can be relieved of Stamp Duty & SDRT on a range of transactions, if, and only if, the member fulfils all of the conditions for relief as a recognised option intermediary.

Since 1 November 2007, it is also possible for a person who is not a member of a regulated market, MTF, recognised foreign exchange, or recognised foreign options exchange but nevertheless is authorised under the law of an EEA state to execute orders on behalf of clients or deal on own account, to apply for intermediary recognition by making an application direct to HMRC Stamp Taxes.

Transactions that may be relieved from a stamp charge include:

  • The purchase of securities on a regulated market, MTF, recognised foreign exchange; or recognised foreign options exchange pursuant to the exercise of an option that is regularly traded, listed or quoted on that market, facility or exchange;
  • The purchase of securities on a regulated market, MTF recognised foreign exchange; or recognised foreign options exchange in order to ‘hedge’ the risk of an option being exercised (See STSM112130);
  • The purchase of rights to open equity derivatives which includes options, warrants, and futures, before expiry of the derivative where the terms of the derivative provide for settlement in the form of equities (commonly referred to as securities or stocks and shares) being delivered.

For further information on options intermediary relief and the conditions that have to be fulfilled to be eligible for stamp relief, see STSM042050.

See STSM021040 for the meaning of stocks or marketable securities

See STSM31090 for the meaning of chargeable securities