UK legislation provides for an SDRT or stamp duty charge at a rate of 1.5% where shares are transferred or issued to a depositary receipt issuer (or its nominee) or a clearance service operator (or its nominee), subject to exemptions for inter-system transfers.

Two court decisions have found the 1.5% charge to be contrary to EU law in certain respects. In HSBC Holdings plc and Vidacos Nominees Limited v HMRC [2009] (C-569-07), the European Court of Justice held that the 1.5% charge on issues to clearance services within the EU was unlawful. In the recent case of HSBC Holdings plc and the Bank of New York Mellon Corporation v HMRC [2012] (TC01858), the UK First-Tier Tax Tribunal held that the 1.5% charge on transfers of shares to a depositary receipt issuer (whether in the EU or not) was unlawful where that transfer was an integral part of the raising of capital.

HMRC has stated that it will not appeal the latest decision. In an announcement on 27 April, it stated that:

  • the overall effect of the two cases is that the 1.5% charge is no longer applicable to issues of UK shares and securities to clearance services or depositary receipt issuers anywhere in the world; but
  • HMRC does not consider that the latest case has any impact upon transfers of shares to depositary receipt issuers or clearance services that are not an integral part of an issue of share capital.  

The current legal position is therefore that the 1.5% charge applies only to transfers of shares to depositary receipt issuers or clearance services where the transfer is NOT an integral part of an issue of share capital. The charge does NOT apply to either issues of shares to depositary receipt issuers or clearance services or transfers of shares to such entities where the transfer IS an integral part of an issue of share capital.