“I see the 1.5% is being removed!” was the subject line of a client e-mail received early last Thursday afternoon in light of HMRC’s latest announcement. To which the answer is “not quite!”
No resurrection of the 1.5% stamp duty charge on capital raisings
To recap, when the Retained EU Law (Revocation and Reform) Bill received Royal Assent, we asked: Has the UK just reintroduced its 1.5% stamp duty charge on share issues? It appears that HMRC shared our concern that the Retained EU Law (Revocation and Reform) Act 2023 would have had the effect of re-introducing the charge from the start of 2024, and draft legislation has been published for inclusion in the upcoming Finance Bill to amend the relevant stamp duty legislation to remove the charge on share issues and certain transfers with effect from 1 January 2024.
For ease, the earlier blog post did not distinguish between stamp duty and stamp duty reserve tax (SDRT); in talking about the draft legislation, we will, however, do so.
Sections 67 and 70 of the Finance Act 1986 impose a 1.5% stamp duty charge in respect of instruments transferring shares to, respectively, a depositary receipt issuer and clearance service provider; there is no stamp duty charge on the issue of shares.
Sections 93 and 96 of the Finance Act 1986 impose a 1.5% SDRT charge in relation to the issue or transfer of shares to, respectively, a depositary receipt issuer and clearance service provider.
Pursuant to the HSBC line of CJEU case law, HMRC accepted in published guidance that the 1.5% charges had to be disapplied in the following circumstances:
- the stamp duty charge under sections 67 and 70 in respect of instruments transferring shares where the transfer is integral to a capital raising
- the SDRT charge under sections 93 and 96 in respect of share issues and share transfers where the transfer is integral to a capital raising
The draft legislation would remove the references to share issues from sections 93 and 96; so, the SDRT charge would no longer apply in these circumstances. (Similar changes were not necessary in respect of the stamp duty charge because it did not apply to share issues in the first place.)
It would also introduce an exception from the stamp duty charge under sections 67 and 70 in respect of “exempt capital-raising instruments” and the SDRT charge under sections 93 and 96 in respect of “exempt capital-raising transfers”. The terms are defined by reference to there being a transfer either in the course of a capital raising or as soon as practicable thereafter where the transferor acquired the relevant shares before or in the course of the capital raising, but was prohibited from transferring them. The draft legislation defines a capital raising as an arrangement involving the issue of securities by a company for the purpose of raising new capital. So there needs to be an issue of securities for the new exceptions to be in play at all.
So where does that leave us?
Generally it is good news. Companies with shares in clearance systems supporting overseas listings will not have a 1.5% charge introduced on future share issues for placings, rights issues, satisfying employee share options and other common corporate transactions. Companies wanting to issue non-plain vanilla listed debt will not have to worry they need to go back to the convoluted pre-2009 (pre-HSBC) transaction structures. Not even tax lawyers wanted to go back to a world where a company wanting to issue a listed dollar denominated convertible bond had to jump through the hoops of ensuring it contained a sterling redemption option and was issued in bearer form to avoid a 1.5% hit!
However, it looks like there will still be a change of law at the end of the year. As the CJEU in Case C-573/16 Air Berlin held, the prohibitions in the Capital Duties Directive go beyond prohibiting taxing share issues and transfers for the purpose of raising new capital. They include, inter alia, prohibiting taxing the listing of shares on a stock exchange. As the Court held, the provisions of the Directive preclude taxing transactions “whereby the legal title to all the shares of a company has been transferred to a clearance service for the sole purpose of listing those shares on a stock exchange, without there being any change in the beneficial ownership of those shares”.
It appears that this is what Indivior Plc relied on when it introduced an additional listing of its ordinary shares on a US stock exchange, NASDAQ, in June, 2023. As part of that transaction, all ordinary shares in Indivior Plc were transferred to The Depository Trust Company (DTC), a US clearance system, to enable the additional US listing, but without any new capital being raised. According to the Notice of General Meeting that Indivior published:
“[Indivior] received HMRC clearance confirming that the transfers of legal title in the Indivior Shares into the DTC clearing system, to the extent required in order to implement the Additional US Listing at the Effective Time, will not be subject to UK stamp duty or UK stamp duty reserve tax.“
Which sounds very much like a clearance that there would be no 1.5% charge on the basis that it was a transfer of legal title only for the purpose of listing shares on a stock exchange without any element of capital raising. It appears that such a transaction will no longer be possible from 1 January 2024 onwards without a 1.5% charge if it is not a part of a capital raise.
For stamp duty purposes, the new legislation would apply to instruments executed on or after 1 January 2024; for SDRT purposes, it would apply to transfers or issues on or after 1 January 2024. Which means there could be a somewhat awkward intermediate period between 1 January 2024 and the date on which the Finance Bill including the draft legislation receives Royal Assent (assuming that is after 1 January 2024 which seems likely) when the charge would technically apply albeit it may subsequently be vacated with retroactive effect. It remains to be seen whether HMRC will accept non-payment in that period (and if so, on what basis) and what it means for clearances and legal opinions which have to be given in the gap.