SDRT is basically a UK tax on an agreement, whether in writing or not, wherever the agreement is entered into, and regardless of the tax residence of any of the contracting parties, to transfer UK shares and securities, and non-UK shares and securities where the register is kept in the UK, and in certain other situations. It is normally chargeable at 0.5% of the value. It is cancelled if UK stamp duty, also at 0.5%, is paid on the transfer document.
Neither SDRT nor stamp duty can clearly be collected when UK shares and securities are issued to or transferred within overseas clearance services e.g. on the CDS system in Canada. Accordingly when UK shares are issued or transferred to or within clearance services, in order to overcome any loss of UK tax revenue, there is a SDRT charge of 1.5% on issue or transfer, which represents three transfers at 0.5%.
The opinion, and it is only an opinion, of the EC Advocate General in HSBC Holdings Plc Vidacos Nominees Ltd v HMRC (569/07) delivered on 18 March 2009, was that the 1.5% tax was a tax on the issue of shares, which is illegal under Article 12 of EC Directive 69/335, and that the 1.5% could not be considered as an advance payment on three transfers. Furthermore it was said to constitute a restriction on the free movement of capital.
It remains to be seen whether the ECJ (European Court of Justice) will confirm this opinion. A decision by the ECJ is expected within a few months.
Practitioners should note that this is now an unclear area of the law. However practitioners negotiating transactions should bear in mind that the SDRT cost may not be a cost of a transaction in a few months’ time.