Overview
McDermott lawyers Sarah Gabbai and Philip Corser said:
“New legislation in the Finance Bill 2023-24 will be welcomed by UK companies with shares traded through clearance systems or depositary receipts (GDRs or ADRs), and those seeking new listings of these types. As a result of the UK’s continuing retreat from the EU, the issue of shares into depositary or clearance systems was due to become subject to a 1.5% stamp tax from 1 January 2024. The Finance Bill will stop this happening.
It will also make absolutely clear that transfers of existing shares (or other securities) to depositary or clearance systems will be free from stamp taxes if they are integral to the issuer’s capital-raising arrangements, or if they are made in connection with the first listing of the issuer’s securities on a particular stock exchange. Currently companies putting their existing shares into a clearance or depositary system, as is often required for listings overseas (for instance in the United States), must either pay 1.5% in stamp taxes or structure their transactions so as to avoid this charge. The new law will thus facilitate new listings as well as the raising of equity finance.
Moreover, all transfers of treasury shares (whether or not in connection with capital-raising or listing) will cease to be subject to stamp taxes. This will make it practicable for UK companies whose shares are generally traded in clearance systems to use treasury shares for purposes such as employee share schemes in cases where a stamp charge currently would or might apply.
Presently, the Finance Act 1986 imposes 1.5% stamp tax charges on issues and transfers of UK shares and other securities to depositaries and clearance services. HMRC has not levied stamp taxes on issues of securities for some years, following EU court decisions that such taxes were unlawful under the EU Capital Duties Directive. (HMRC does still levy 1.5% stamp taxes on most transfers of securities to depositary and clearance systems, and this will not change except in the circumstances noted above.) However, from 1 January 2024 the Retained EU Law (Revocation and Reform) Act 2023 will abolish the supremacy of EU law, so that instead of having precedence over UK laws, any EU Directive must be read subject to any UK statute with which it is incompatible, and EU case law will not be binding in the UK. Without the provisions in the Finance Bill, this would have meant that the existing 1.5% stamp tax charges on issues of securities could have been enforced again. These provisions will have temporary effect from 1 January 2024, pending the enactment of the Finance Bill later in 2024.”
