Stamp Duty and Stamp Duty Reserve Tax (SDRT): Investment exchanges and clearing houses; Regulations made under Sections 116 and 117 Finance Act 1991

HM Revenue & Customs (HMRC) Stamp Taxes has recently received a number of enquiries seeking clarification as to whether securities transactions that are reported to, and cleared via, an investment exchange or a multilateral trading facility, are eligible for clearing relief from Stamp Duty or Stamp Duty Reserve Tax (SDRT) under existing Investment Exchange and Clearing House regulations.

Background

HM Treasury has the power under Sections 116 and 117 FA 1991 to make regulations which provide for transactions involving prescribed recognised investment exchanges (which, for the purposes of these regulations, include regulated markets and multilateral trading facilities) or their members or nominees, or prescribed recognised clearing houses (or their nominee) to be relieved from Stamp Duty and SDRT charges in certain prescribed circumstances. This relief is often referred to as 'clearing relief'.

A clearing house is essentially a ‘middleman’ standing between an ultimate seller and an ultimate purchaser of securities, acting as a ‘buyer’ of securities from the seller and a ‘seller’ of the same securities and quantity to the purchaser. In this way the delivery of securities, and payment for them, is guaranteed because the clearing house and its clearing members assume all the risks of the transaction. The clearing process does, however, create a series of transfers for what is essentially a single purchase and sale. Each transfer of securities to a clearing house member and to the clearing house itself potentially attracts a charge to Stamp Duty or SDRT in addition to that falling on the ultimate purchaser. Regulations made under Sections 116 and 117 FA 1991 provide, however, for the intervening charges to be relieved from Stamp Duty or SDRT whilst leaving the charge falling on the ultimate purchaser in place.

Clarification

The regulations commonly provide that there shall be no charge to Stamp Duty or SDRT where securities are transferred between the entities in the prescribed circumstances 'in connection with a transaction made on the facility [or exchange]'. The meaning of the word 'made' is not defined in the regulations. Following representations and after taking advice, HMRC considers that 'made' in these regulations includes all transactions that are performed on an investment exchange or multilateral trading facility in accordance with the rules of that exchange or facility. This means that transactions 'made' on a platform will include transactions conducted away from the central trading mechanism but executed in accordance with the rules of the trading platform (referred to as 'negotiated transactions' in the Markets in Financial Instruments Directive).

Any enquiry relating to this Guidance Note should be made to the HMRC Stamp Taxes Policy Team (telephone Simon English: 020 7147 2808 or Andrew Hewitt: 020 7147 0092).