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HMRC internal manual

Stamp Taxes on Shares Manual

Stamp duty and SDRT Administration: SDRT Administration: void or unenforceable contracts and cancelled transactions

Void or unenforceable contracts, and cancelled transactions

It is possible to delete or, failing that, to reverse a transaction before settlement in CREST occurs. Whether or not Stamp Duty Reserve Tax (SDRT) is due on the original agreement to transfer securities (and therefore whether repayment claims can be accepted) will depend on whether an enforceable and unconditional agreement was made. This is a question of fact.

The basic principles to take into account are that:

  • under FA86/S87, SDRT is charged on agreements to transfer chargeable securities for money or money’s worth, not on the transfers themselves;
  • the starting point from the SDRT point of view is that the transfers of securities resulting from the CREST settlement process will be in pursuance of an underlying agreement.

The CREST background is that, when share transfers are agreed by CREST Participants, they will generally make inputs into CREST which have to match if the bargain is to proceed to settlement; it then being possible for deleting inputs to be made which, if they also match, delete the bargain so that it never reaches the settlement stage. There are also occasions when a CREST Participant will report a non-matching input to CREST, such as an Own Account Transfer (an OAT), which nevertheless still proceeds to settlement.

Transactions which are deleted before settlement in CREST

A transaction may be cancelled before or after its completion and for a number of reasons. Where this is done, CREST automatically re-credits any SDRT deducted. The CREST Reference Manual (Chapter 8, Section 4), records that we have stipulated that an instruction should not be deleted unless the agreement to transfer securities was not legally enforceable. No SDRT arises in respect of such a transaction unless a valid, enforceable and unconditional contract had been made and the parties had simply changed their minds.

HMRC will not seek SDRT on an “agreement” to transfer chargeable securities if the transaction does not take place and is deleted before CREST settlement. SDRT would arise in respect of an agreement which was legally enforceable but was rescinded before settlement. But in practice HMRC will not pursue such an argument unless there are exceptional circumstances (for example, where the purpose of rescinding an enforceable agreement was to gain a tax advantage).