Planned changes announced on 1.5% stamp tax charges
HM Revenue & Customs have today published draft legislation proposing to remove the 1.5% stamp tax charge on issues, and certain transfers, of shares and other securities to depositary receipt systems and clearance services (or their nominees).
The HMRC publications on this can be found here and a recap of the current UK law on this is below. HMRC have opened a consultation on the draft legislation, which will close to comments on 12 October 2023.
This development helps to provide welcome clarity on the expected treatment of such issues and transfers following the end of 2023, which would otherwise have been changed by the Retained EU Law (Revocation and Reform) Act 2023 enacted earlier this year (see below). The policy objective of the draft legislation is to ensure that the position in UK law regarding the 1.5% stamp tax charges, from 1 January 2024 onwards, reflects the previously expected approach under the EU Capital Duties Directive 2008/7/EC and subsequent case law.
If the draft measure is enacted in the form proposed, we expect that the treatment of shares and other securities issued or transferred to depositary receipt systems and clearance services (or their nominees) should, in effect, continue to be very similar to the treatment expected before the end of 2023.
The proposed changes will also provide additional clarity compared with the pre-2024 position, in simplifying a disapplication of stamp tax charges which was previously spread across an EU Directive and various UK and EU case law decisions. In particular, the draft legislation makes clear that no 1.5% stamp tax charges arise on (any) issues of shares or other securities, nor on transfers of such securities where they are made in the course of "capital-raising arrangements".
A question remains regarding the timing for enactment of the proposed changes. Under the commencement provisions in the draft legislation, the changes would have effect from 1 January 2024. However, they will not definitively become law until the legislation is enacted in the upcoming Finance Act 2023-24, which is likely to be after that date. Unless this changes, this would create a lacuna for taxpayers for any transactions taking place in the first part of 2024 before the Finance Bill 2023-24 is enacted (expected Q1 2024), plus potential administrative burdens for taxpayers and HMRC.
It is possible that this has been considered by the government. The proposed changes could have temporary statutory effect from 1 January 2024 under section 1, Provisional Collection of Taxes Act 1968 (for SDRT) and section 50, Finance Act 1973 (for stamp duty), provided certain conditions are met. This would, amongst other things, require the government to put forward, and the House of Commons to pass, a resolution within s.1(2) and s.50(1) of those Acts, respectively. If the conditions were met, we expect the draft legislation would have statutory effect as if contained in an Act of Parliament for at least 30 days and (if further conditions are met) up to seven months, provided certain negatory events didn't take place which would cease the temporary statutory effect of the proposed changes. The government would have the opportunity to introduce the required resolution to kickstart the temporary statutory effect at the Autumn Statement, scheduled for 22 November 2023.
In the absence of such a resolution, following the end of 2023, the 1.5% stamp tax charges will in effect be reinstated until the Finance Bill 2023-24 is enacted, at which point the tax would become repayable. It remains to be seen whether the relevant 'statutory effect' resolution will be introduced or what other comfort may be provided, in HMRC guidance or otherwise, that stamp taxes will not need to be temporarily collected and later returned to taxpayers.
Recap of current UK law
UK law currently provides for 1.5% stamp tax charges (in the form of stamp duty or SDRT, or sometimes both) on issues and transfers of shares and other securities with equity-like features to depositary receipt systems and clearance services (or their nominees).
Restrictions set out in the EU Capital Duties Directive 2008/7/EC and subsequent case law provided for these 1.5% stamp tax charges to be disapplied in respect of all (or almost all) issues and certain transfers of shares and other securities. There is also an exemption for so-called "inter-systems" transfers, between depositary receipt systems and clearance services (or their nominees).
Following the UK's exit from the European Union and the end of the transitional "implementation period", the disapplication of the 1.5% stamp tax charges remained as a result of the European Union (Withdrawal) Act 2018 (as amended). This position was essentially unchanged from the position prior to Brexit.
However, the Retained EU Law (Revocation and Reform) Act 2023 provides for such disapplication, derived from EU law rights, powers and restrictions, to be removed from the end of 2023. This will reinstate the 1.5% stamp tax charges described above into UK law. The inter-systems transfer exemption would not be affected.
This draft legislation is therefore welcome to make clear that the government does not intend for there to be such a material change to the stamp tax treatment of issues and transfers of share and other securities to depositary receipt systems and clearance services (or their nominees), following the end of 2023. It is, however, disappointing that there is currently no certainty of a seamless maintenance of the status quo: we would welcome further statements from government clarifying that they intend for the proposed changes to have temporary statutory effect from 1 January 2024.
- This draft measure will help provide clarity to businesses as to the expected treatment in respect of the 1.5% stamp tax charges following the end of 2023.
- But an important timing question remains, given the potential gap between the end of 2023 and the enactment of the Finance Bill 2023-24, likely in Q1 2024. This will cause some residual uncertainty and potential administrative burdens for taxpayers and HMRC until enactment, unless the government takes further steps such as enabling temporary statutory effect of the proposed changes.
- The consultation on the draft legislation will close on 12 October 2023. So any issuers that anticipate that they could be affected by this uncertainty, or with other comments on the proposals, should consider sending their response to the relevant HMRC team before then.
We are happy to discuss any comments or questions you may have on the draft legislation, including as to specific details of how the new rules will work and the potential impact on your transactions following the end of 2023. We would also be happy to help you respond to the consultation. Please reach out to the contacts listed alongside this article.
Authored by Philip Harle, Adam Parry, and Katharine Crossman.