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HMRC internal manual

Stamp Taxes on Shares Manual

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HM Revenue & Customs
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Derivatives: introduction to options: intermediary relief

Relief from Stamp Duty and Stamp Duty Reserve Tax (SDRT) is afforded to 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. Because they are obliged to deal when requested to do so as they cannot refuse a transaction, Stamp Duty and SDRT relief are available on all their share purchases.

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, providing an accessible derivative trading market place for investors. Such persons that provide market liquidity are called “intermediaries”.

The governing legislation is at FA86/S80A (Stamp Duty) and FA86/S88A (SDRT) Finance Act 1986 which provide that no Stamp Duty is payable on an instrument which transfers securities to an intermediary, nor is SDRT chargeable on an agreement to transfer 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 Stamp relief, that is, being a recognised option intermediary.

With effect 1 November 2007, it is also possible that 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 status by making application direct to HMRC Stamp Taxes Birmingham.

Transactions that may be relieved from a stamp charge include:

  • The purchase of securities on a regulated market, multilateral trading facility, 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, multilateral trading facility, 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 (the terms of the derivative providing 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.