Policy paper

Explanatory note (accessible version)

Published 14 September 2023

Clause 1: Stamp Duty and SDRT: capital-raising arrangements etc.

Summary

1.This measure ensures that it continues to be the case that no 1.5% charge to Stamp Duty or Stamp Duty Reserve Tax (SDRT) arises in relation to issues of securities or stock into depositary receipt systems and clearance services and transfers of securities into depositary receipt systems and clearance services made in the course of capital-raising arrangements. This measure also ensures that it continues to be the case that no 1.5% (or 0.2%) charge to Stamp Duty arises in relation to the issue of bearer instruments. The measure has effect from 1 January 2024.

Details of the Clause

2.Clause 1 introduces Schedule 1.

Details of the Schedule

Part 1: Depositary receipts and clearance services

Stamp Duty

3.Paragraph 2 inserts new subsection (1A) into section 67 of Finance Act (FA) 1986. The new subsection provides that for the purposes of subsection 67(1) of FA 1986 ‘instrument’ does not include an exempt capital-raising instrument or a bearer instrument.

4.Paragraph 3 inserts new subsection (1A) into section 70 of FA 1986. The new subsection provides that for the purposes of subsection 70(1) of FA 1986 ‘instrument’ does not include an exempt capital-raising instrument or a bearer instrument.

5.Paragraph 4 inserts new section 72ZA (Meaning of ‘exempt capital-raising instrument’) after section 72 of FA 1986. The new section provides that for the purposes of sections 67 and 70 of FA 1986 an instrument is an ‘exempt capital-raising instrument’ if either of the conditions set out in subparagraphs 2 and 3 is met:

• the first condition is that the instrument transfers relevant securities in the course of capital-raising arrangements
• the second condition relates to certain circumstances where the transferor is subject to a prohibition that has the effect of preventing the transfer of the relevant securities in the course of the capital-raising arrangements

6.Subparagraph 4 provides the definition of ‘capital-raising arrangements’ for the purposes of section 72ZA.

Stamp Duty Reserve Tax

7.Paragraph 5 amends the SDRT provision of FA 1986 in relation to depositary receipts.

8.Subparagraph 2 amends section 93 of FA 1986 so that a charge under that section does not arise on the issue of chargeable securities and makes consequential changes. Subparagraph 2 also inserts new subsection (1A) which sets out the provisions which contain exceptions to the charge to SDRT under section 93 of FA 1986.

9.Paragraph 6 makes consequential amendments to section 95 of FA 1986 (depositary receipts: exceptions) as the exceptions are no longer relevant to issues.

10.Paragraph 7 makes consequential amendments to section 95A of FA 1986 (depositary receipts: exception for replacement securities) as the exception is no longer relevant to issues.

11.Paragraph 8 amends the SDRT provisions of FA 1986 in relation to clearance services.

12.Subparagraph 2 amends section 96 of FA 1986 so that a charge under that section does not arise on the issue of chargeable securities and makes consequential changes. Subparagraph 2 also inserts new subsection (1A) which sets out the provisions which contain exceptions to the charge to SDRT under section 96 of FA 1986.

13.Paragraph 9 makes consequential amendments to section 97 of FA 1986 (clearance services: exceptions) to reflect that a 1.5% SDRT charge does not arise on the issue of chargeable securities.

14.Paragraph 10 renumbers section 97AA of FA 1986 as new section 97ZA of FA 1986 and the heading is amended.

15.Subparagraph 2 makes consequential amendments to section 97ZA of FA 1986 as the exception is no longer relevant to issues.

16.Paragraph 11 makes consequential amendments to section 97A to reflect that a 1.5% SDRT charge does not arise on the issue of chargeable securities.

17.Paragraph 12 inserts new section 97ZB (Depositary receipts and clearance services: further exceptions) before section 97B of FA 1986. The new section provides that with regard to the charges to tax under sections 93 and 96 of FA 1986 a transfer of chargeable securities is an ‘exempt capital-raising transfer’ if either of the conditions set out in subparagraphs 3 and 4 is met:

• the first condition is that the transfer is in the course of capital-raising arrangements
• the second condition relates to certain circumstances where the transferor is subject to a prohibition that has the effect of preventing the transfer of the chargeable securities in the course of the capital-raising arrangements

18.Subparagraph 5 provides the definition of ‘capital-raising arrangements’ for the purposes of section 97ZB.

19.Paragraph 13 makes a consequential amendment to section 97B (transfer between depositary receipt system and clearance system) of FA 1986 to reflect the removal of the provisions at section 97C of FA 1986.

20.Paragraph 14 removes the provisions at section 97C of FA 1986 in respect of transfers between depositary receipt and clearance services systems. These provisions are redundant following the removal of the 1.5% SDRT charge on issues.

Part 2: Bearer instruments

21.Paragraph 15 amends Schedule 15 to FA 1999.

22.Subparagraph 2 removes paragraph 1 of Schedule 15 FA 1999 so a charge does not arise on the issue of bearer instruments.

23.Subparagraph 3 to 9 make consequential changes to Schedule 15 of FA 1999 and removes a reference to a previously repealed provision.

Part 3: Minor and consequential amendments

24.Paragraph 16 makes consequential amendments to section 126 of FA 1984 as a charge on issues does not arise under Schedule 15 of FA 1999 or section 93 of FA 1986.

25.Paragraph 18 makes consequential amendments to section 131(3) of FA 1976 as a charge under Schedule 15 of FA 1999 does not arise on issues.

26.Paragraph 19 makes consequential amendments to section 79(2) of FA 1986 as a charge under Schedule 15 of FA 1999 does not arise on issues.

27.Paragraph 20 makes consequential amendments to section 50 of FA 1987 as a charge under Schedule 15 of FA 1999 does not arise on issues.

28.Paragraph 21 makes consequential amendments to section 143 of FA 1988 as a charge under Schedule 15 of FA 1999 does not arise on issues.

Part 4: Commencement and transitional provision

29.Paragraph 22 provides commencement provisions in respect of Stamp Duty and SDRT.

30.Paragraph 23 provides transitional provision in respect of the amendments to section 95A of FA 1986 (depositary receipts: exception for replacement securities).

31.Paragraph 24 provides transitional provision in respect of the amendments to section 97ZA of FA 1986 (clearance services: exception for replacement securities).

32.Paragraph 25 provides transitional provision in respect of the amendments to Schedule 15 of FA 1999 (bearer instruments).

33.Paragraph 26 provides transitional provision in respect of the amendments to section 50 of FA 1987 (warrants to purchase government stock etc).

Background note

34.This measure ensures that it continues to be the case that no 1.5% charge to Stamp Duty or SDRT arises in relation to issues of securities or stock into depositary receipt systems and clearance services and transfers of securities made in the course of capital-raising arrangements. This measure also ensures that it continues to be the case that no 1.5% (or 0.2%) charge to Stamp Duty arises in relation to the issue of bearer instruments. The measure has effect from 1 January 2024.

35.Following EU and UK court decisions in 2009 and 2012 respectively, HM Revenue & Customs (HMRC) recognized 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 Capital Duties Directive. UK legislation was not amended as taxpayers are currently able to rely on the direct effect of EU law.

36.The effect of the Retained EU Law (Revocation and Reform) Act 2023 means that it is necessary for the government to legislate in order to maintain the 0% charge.

If you have any questions about this change, or comments on the legislation, contact: [email protected].