Brexit, Air Berlin And The 1.5% Stamp Duty Charge: Reasons To Be Cheerful

Speed read

It has been settled HMRC practice for some time now that the 1.5% stamp charge set out in FA 1986 in relation to the issue and transfer of UK shares to clearance services and depositaries was restricted by EU law, such that it should arise only on the transfer of shares which were not integral to the raising of capital for the company in question. However, there has been growing uncertainty as to the future of the charge after Brexit. Two recent developments have changed matters here. Firstly, the Air Berlin case (Case C-573/16) has broadened even further the scope of the derogation from the charge; and secondly, the UK government has confirmed that it does not intend to reintroduce the charge following the UK's exit from the EU. While both of these developments should give potentially affected taxpayers a reason to be cheerful, they must be approached with caution.

The history of the charge: a summary

The Finance Act 1986 contains provision at ss 67, 70, 93 and 96 for the application of a 1.5% stamp duty charge on the issue and/or transfer of shares in a UK company into a depositary or clearance service.

The origin of the 1.5% charge was a probably accurate perception on the part of the government of the day that it would be impractical to enforce the 0.5% stamp duty reserve tax (SDRT) charge that would otherwise arise on the transfer of depositary receipts or of interests in UK securities within clearance systems. The 1.5% charge was therefore introduced as a 'season ticket' (albeit of indefinite duration), being the price of entry into a share dealing structure which would permit future transfers to be made stamp free.

The validity of certain aspects of the charge was challenged in what are generally known as the HSBC cases: HSBC Holdings plc and Vidacos Nominees Ltd v HMRC (Case C-569/07) in the CJEU; and HSBC and The Bank of New York Mellon Corporation v HMRC [2012] UKFTT 163 (TC), in the UK's First-tier Tax Tribunal. In these cases, the courts considered the provisions of the EU's Capital Duties Directive (EU Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital, and its predecessor EU Council Directive 69/335/EEC of 17 July 1969). This Directive allows for the imposition of duties on the transfer of securities but not on a range of other transactions, including the creation, issue and admission to quotation of shares on a stock exchange.

The conclusion reached in these cases was that the charge was prohibited by EU law on the issue and transfer of shares integral to the raising of capital.

Following these cases, HMRC issued a statement ('SDRT: HSBC Holdings PLC and the Bank of New York Mellon v HMRC: First-tier Tax Tribunal decision - further announcement'), in which it confirmed that it would not be appealing the Bank of New York decision. It stated:

'HMRC will no longer seek to impose SDRT at the rate of 1.5% on issues of UK shares to depositary receipt issuers and clearance services outside the EU ... HMRC does not consider that the tribunal's decision has any impact...