Draft UK legislation was previously published proposing to remove the 1.5% stamp tax charge on issues, and certain transfers, of securities to depositary receipt systems and clearance services (or their nominees) currently scheduled to be resurrected on 1 January 2024 by the Retained EU Law (Revocation and Reform) Act 2023. A revised draft has been published as part of the Autumn Statement, increasing the scope of the stamp tax exemptions available and the timing concern has been (mostly) addressed by the Parliament. Some residual concerns still remain but the developments provide welcome clarity for businesses planning transactions in 2024.
Revised draft legislation published on 1.5% stamp tax charges
Following our previous article on this topic, the UK Government has published a revised draft of the 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). This was published as part of the “ways and means resolutions” published at the Autumn Statement on 22 November 2023 (found at items 20 and 21).
HMRC held a short consultation on the initial draft legislation, which Hogan Lovells (amongst others) responded to in writing and in discussions with HMRC. The revised draft of the legislation addresses most, but not all, of the concerns we raised.
To recap, several questions and concerns arose as result of the initial draft of the draft legislation, in particular:
- The scope of the draft legislation, as to whether it provided as broad an exemption from stamp tax charges as that provided by retained EU law prior to the end of 2023.
- The timing for enactment of the proposed changes: as the draft legislation will only be enacted in the Finance Act 2024, there is a gap between the end of 2023 when the 1.5% stamp tax charges will be reinstated as a result of the Retained EU Law (Revocation and Reform) Act 2023 and the enactment of the Finance Act 2024 (expected around March or April 2024).
Scope of the revised draft legislation
The draft legislation originally excluded the following from the 1.5% stamp tax charges:
- the issue of securities to depositary receipt systems and clearance services (or their nominees); and
- transfers of securities which are an "exempt capital-raising" transfer, broadly being transfers in the course of arrangements pursuant to which securities are issued by a company for the purpose of raising new capital ("capital-raising arrangements").
Amongst other more minor changes, the revised draft of the legislation now includes additional exemptions for:
- transfers of securities which are an "exempt listing" transfer, broadly being transfers in the course of qualifying listing arrangements (i.e., a first listing on certain recognised stock exchanges) where the beneficial ownership of the securities does not change; and
- transfers of shares out of treasury.
Not all of the concerns flagged to HMRC as part of the consultation on the draft legislation have been reflected in the revised draft. It is also arguable that the scope of the retained EU law in this area prior to the end of 2023 is broader than even the revised draft legislation, for example also extending to 0.5% stamp tax charges in certain circumstances (this may, however, be picked up later as part of HMRC's wider "stamp taxes modernisation" workstream).
Nevertheless, these changes are welcome as they more fully reflect the scope of the retained EU law which the draft legislation seeks to replace, and the practical reality of transactions sought to be carried out by UK businesses. Uncertainty in the equity capital markets, particularly for IPOs, has increasingly seen businesses turn to additional listings on additional stock exchanges to increase the liquidity and profile of their shares. The initial draft legislation would not have exempted these transactions (in the absence of new share issues) from 1.5% stamp tax charges, but the "exempt listing" provisions now address this.
Residual timing concern
Following the passing of the ways and means resolutions by Parliament on 27 November 2023, it is now confirmed that (as suggested in our previous article) the procedures under the Provisional Collection of Taxes Act 1968 (“PCTA”) (for stamp duty reserve tax (“SDRT”)) and Finance Act 1973 (for stamp duty) will be utilised to give temporary statutory effect to the draft legislation from 1 January 2024. This ensures that the exclusions from the 1.5% stamp tax charges provided for by the draft legislation will be available seamlessly following the end of 2023 (when the disapplication of the 1.5% stamp tax charges as a result of retained EU law ceases).
However, some residual risk will remain until the Finance Act 2024 is passed due to the possibility of the cessation of temporary statutory effect of the draft legislation if certain “Cessation Events” set out in the PCTA and Finance 1973 take place.
If a Cessation Event takes place, the temporary statutory effect of the draft legislation will cease from that date. There is then a question whether there will be retrospective reinstatement of the 1.5% stamp tax charges back to 1 January 2024.
- The position is clear in respect of stamp duty: the Finance Act 1973 expressly provides for no retrospective reinstatement.
- The position is less helpful in respect of SDRT: the wording of the PCTA does not expressly provide for either scenario. On our reading of the legislation the temporary effect would cease from the date of the Cessation Event but the situation appears to be untested. This raises the – maybe only theoretical – risk that, in the unlikely event a Cessation Event occurs, any transactions which had taken place since 1 January 2024 in reliance on the temporary statutory effect of the draft legislation could be subject to a 1.5% SDRT charge.
However, there are two reasons why this poses only a small residual risk.
First, it is possible that in the event of an impending Cessation Event before the Finance Act 2024 is passed, the draft stamp tax legislation could be ‘saved’. Given their nature, Cessation Events are typically anticipated by the government in advance of taking place and in the resulting “wash-up” period prior to Parliament proroguing or dissolving, uncontroversial and essential parts of in-progress bills are rushed through the process to become law. This could include a reduced Finance Bill containing the draft stamp tax legislation, which simply seeks to preserve (most of) the pre-2024 status quo.
Second, it would be unprecedented in recent times for legislation given temporary statutory effect to fall prior to enactment as a result of a Cessation Event.
While some residual concerns still remain, the developments coming out of the Autumn Statement regarding the draft legislation provide welcome clarity for businesses considering transactions in 2024, particularly around listings and issuances. The revised draft legislation should enable businesses to now progress and implement such transactions in 2024.