STSM117100 - Derivatives: introduction to futures and forwards: settlement of a futures or forwards contract
Stamp Duty and Stamp Duty Reserve Tax (SDRT)
1) Futures contracts
Physical delivery required
If the holder (the buyer) of the futures contract (relating to ‘stock or marketable securities’ that is capable only of physical delivery of securities upon settlement of the futures contract) does not trade the future on the secondary market (see STSM117090), the 0.5% SDRT charge which may already have arisen and been paid on the original agreement (the futures contract) can be cancelled and refunded (by virtue of section 92 FA1986) on settlement of the contract.
For this to happen, an instrument of transfer (for example stock transfer form) will need to be executed to transfer the underlying securities, which is duly stamped following payment of the relevant Stamp Duty charge.
Any SDRT reclaim must be made within 6 years from the date of the futures contract (section 92(1) FA1986)
Secondary trading of futures contract
If however the futures contract is secondary traded, the 0.5% SDRT charge arising on the original futures contract issue remains in place, as do other 0.5% SDRT charges on subsequent secondary trading of the future.
The 0.5% Stamp Duty payable on the eventual transfer will not cancel any SDRT charges arising in respect of secondary trading of the future.
Where no instrument of transfer is or will be executed in respect of the transfer of securities following settlement of the futures contract, the 0.5% SDRT charge (under section 87 FA1986) which may have arisen on the date when the futures contract is entered into becomes final.
2) Forwards contracts
If the holder (the buyer) of the forwards contract (relating to ‘stock or marketable securities’ that is capable only of physical delivery of shares upon settlement of the forwards contract) executes an instrument of transfer to settle the transaction which is duly stamped following payment of the relevant Stamp Duty charged, then the 0.5% SDRT charge which may already have arisen and paid on the original agreement (the forwards contract), can be cancelled and refunded (by virtue of section 92 FA1986).
Any SDRT reclaim must be made within 6 years beginning from the date of the forwards contract (section 92(1) FA1986).
Where no instrument of transfer is, or will be executed in respect of the transfer of securities following settlement of the forwards contract, then the 0.5% SDRT charge (under section 87 FA1986) which may have arisen and been paid on the agreement to transfer ‘chargeable securities’ on the ‘relevant day’ when the forwards contract is entered into becomes final.
3) Higher 1.5% Stamp Duty and SDRT rate of charge
When UK securities are transferred to a depositary receipt issuer (or its agent or nominee) or clearance service (or its agent or nominee), a Stamp Duty or SDRT charge can arise under sections 67(2), 70(2), 93(4) and 96(2) FA1986. More information on the 1.5% charge can be found from STSM053000.
Further information
See STSM012040 for the meaning of ‘relevant day’
See STSM031090 for the meaning of ‘chargeable securities’
See STSM02104 for the meaning of 'stocks or marketable securities'