BN 37: Recognition of stock exchanges and definition of "listed" for tax purposes

Who is likely to be affected?

  1. Operators of investment exchanges that are, or may in the future be, recognised by the Financial Services Authority (FSA).
  2. Shareholders who may qualify for any of the reliefs that depend on whether shares are listed or dealt in on a recognised stock exchange (such as ISA-eligibility or employee share acquisitions) or are not listed (for example Enterprise Investment Scheme or Capital Gains Tax business asset taper relief).

General description of the measure

  1. Legislation will be introduced in Finance Bill 2007 to allow HM Revenue & Customs to designate as a recognised stock exchange for tax purposes any investment exchange designated as a recognised investment exchange (RIE) by the FSA. This will ensure equal tax treatment for FSA-listed shares, regardless of which RIE is used as the primary market for the shares.
  2. At the same time, the measure will put in place a definition of the term “listed”, and update references used in conjunction with “listed” and “stock exchange” to reflect regulatory and market changes.

Operative date

  1. The measure will have effect on and after the date that Finance Bill 2007 receives Royal Assent.

Current law and proposed revisions

  1. Section 1005 of Income Tax Act 2007 (ITA) classifies the London Stock Exchange as a recognised stock exchange for income tax purposes. The same definition is applied by section 841 Income and Corporation Tax Act 1988 for corporation tax purposes, and by section 288 Taxation of Chargeable Gains Act 1992 for capital gains purposes. No other UK stock market is recognised.
  2. There are also powers in section 1005 of ITA for the Commissioners for HM Revenue & Customs to designate, by order, overseas stock exchanges as recognised. There are no provisions to recognise any UK stock market apart from the London Stock Exchange. A list of overseas exchanges that are recognised is available on the HM Revenue & Customs web site at http://www.hmrc.gov.uk/fid/rse.htm
  3. There is no explicit statutory definition of the terms “listing” and “listed”. HM Revenue & Custom’s interpretation of them is set out in a press release dated 28 November 2001. This is that in EU countries (and Iceland, Liechtenstein and Norway), it denotes listing by a competent authority and admission to trading on a recognised stock exchange. Outside those countries, where there is no system directly analogous to the EU listing regime, the phrases denote admission to trading by a recognised stock exchange.
  4. The listing of shares on a recognised stock exchange is a requirement for receipt of a number of tax reliefs, for example shares held in an ISA must meet this condition. Equally, a number of tax reliefs are available only where the shares are not listed on a recognised stock exchange, such as Capital Gains Tax business asset taper relief.
  5. This measure will allow the Commissioners of HM Revenue & Customs to designate as a recognised stock exchange any UK investment exchange that is designated an RIE by the FSA. The power to designate overseas exchanges will not be changed by this measure.
  6. The measure will also define the term “listed” as meaning listed by the country’s listing authority and admitted to trading on a regulated market (for countries covered by the EU listing regime). Elsewhere, it will mean listed on the local equivalent of an official list and admitted to trading on a market which is the local equivalent of a regulated market.
  7. For EU countries and elsewhere, for shares to be “listed on a recognised stock exchange”, the market on which the shares are admitted to trading must be one which will be designated by HM Revenue & Customs as a recognised stock exchange.
  8. At the same time, the measure will update references in provisions that use terms that are no longer current in the market, such as “the Official List of the Stock Exchange” and the “Unlisted Securities Market”’.

Further advice

  1. If you have any questions about this change, please contact Marion Williams on 020 7147 2553 (email: marion.williams@hmrc.gsi.gov.uk) or David Moran on 020 7147 2612 (email: david.moran@hmrc.gsi.gov.uk).