On 14 September 2023, HM Revenue & Customs (“HMRC”) published a policy paper, along with explanatory notes and draft legislation, announcing the removal of the 1.5% charge to stamp duty and stamp duty reserve tax (“SDRT”) on the issuance of UK shares into depositary receipt systems and clearances services and on transfers linked with capital raising.

HMRC’s draft legislation, accompanying the announcement and intended for inclusion in the UK’s Finance Bill 2024, makes clear that the intention is also that no stamp duty charge arises in relation to the issue of bearer instruments. The measure is proposed to have effect from 1 January 2024.

Background

Following the EU and UK court decisions in (i) HSBC Holdings plc and Vidacos Nominees Ltd v HMRC (Case C-569/07) and (ii) HSBC Holdings PLC and The Bank of New York Mellon Corporation v HMRC [2012] UKFTT 163 (TC), HMRC determined that the 1.5% stamp duty and SDRT charges on the issue of securities into depositary receipt systems and clearance services, and on transfers integral to capital raising, were incompatible with the European Union Capital Duties Directive (Council Directive 69/335/EEC). Following that determination, HMRC ceased to collect the stamp duty or SDRT on such issues or transfers. However the UK legislation was not changed at that point.

Following the UK’s exit from the EU, the UK Government confirmed that the 1.5% charge would not be re-introduced on the basis that the relevant provisions of the Capital Duties Directive formed part of retained EU law under the European Union (Withdrawal) Act 2018.  

The enactment on 29 June 2023 of section 2 of the Retained EU Law (Revocation and Reform) Act 2023 has, however, removed the provisions of the Capital Duties Directive from UK law, with effect from 1 January 2024. There was therefore a risk, without further UK legislation, that the 1.5% charge to UK stamp duty and SDRT might be resurrected from 1 January 2024. Commentators, business leaders and the UK Government itself appear to be in agreement that this would have a detrimental impact on the UK’s capital markets sector, not least as it has been over a decade since the 1.5% charge was collected on the issuance of UK shares into depositary receipt systems and clearances services and on transfers linked with capital raising.

Fortunately, the UK Government has realized the danger in good time, and the proposal which has been published by HMRC is to abolish the 1.5% charge, with effect from 1 January 2024. This would represent a timescale which is compatible with the Retained EU Law (Revocation and Reform) Act 2023 coming into force with effect from the same day, namely 1 January 2024.

There remains a possible period of uncertainty between 1 January and the date of Royal Assent of the Finance Bill 2023 in which the 1.5% charge might technically be collected. It seems unlikely, given HMRC’s recent announcement, that this would ever be a course of action HMRC would take in practice. Nevertheless, it is hoped that clarification will be provided promptly by the UK Government regarding the residual uncertainty. 

The proposed legislation to abolish the 1.5% charge abolishes the 1.5% SDRT charge on the issue and transfer of UK chargeable securities to a clearance service or depositary. The draft legislation also proposes an exclusion from the stamp duty charge in respect of transfers of an “exempt capital-raising instrument” and from the SDRT charge in respect of an “exempt capital-raising transfer.” Both terms are defined by reference to “capital-raising arrangements,” in which securities are issued by a company for the purpose of raising new capital. The legislation extends the word “transfer” in the course of capital-raising arrangements to include, where a transferor is prevented from transferring shares, a transfer of those shares as soon as reasonably practicable once that prohibition ceases to have effect.

Link to policy paper: https://www.gov.uk/government/publications/stamp-taxes-on-shares-removal-of-15-charge-on-issues-and-certain-related-transfers