Clause 20 - Capital-raising arrangements etc

Part of Finance Bill – in a Public Bill Committee am 10:45 am ar 16 Ionawr 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury 10:45, 16 Ionawr 2024

Clause 20 and schedule 11 make changes to ensure continuity in stamp duty and stamp duty reserve tax treatment following changes made by the Retained EU Law (Revocation and Reform) Act 2023 that took effect at the end of 2023.

Stamp duty and stamp duty reserve tax are charged on transfers of securities in UK companies, but not generally on the issue of new securities. The main rate for both taxes is 0.5%. A 1.5% higher rate was applied on the issue or transfer of UK securities into overseas clearance services or depositary receipt systems, to reflect the fact that subsequent transfers of those shares would not be subject to stamp duty or stamp duty reserve tax while the securities remained in those overseas systems and services. A 1.5% higher rate charge was also applied on issues and transfers of bearer instruments. A bearer instrument is a document that constitutes the rights of the holder of that instrument to the securities that the document represents.

Following EU and UK court decisions in 2009 and 2012, HMRC accepted that the 1.5% charge on certain transactions was incompatible with the EU capital duties directive. The incompatible transactions were the issue of securities into depositary receipt systems and clearance services, and certain related transfers known as transfers integral to capital raising. HMRC also recognised that the charge on the issue of bearer instruments was incompatible with the capital duties directive. UK legislation was not amended, because at the time taxpayers could rely on the direct effect of EU law. However, now that the changes in the retained EU law Act have taken effect, that is no longer the case, and UK legislation must therefore be amended to prevent the 1.5% charge from being reintroduced for those transactions.

Clause 20 and schedule 11 will maintain the current position by removing the 1.5% charge in domestic legislation on the issue of UK securities into overseas depositary receipt systems and clearance services, and on certain transfers related to capital raising. They will also remove the 1.5% charge on issues of bearer instruments. The changes provide legislative certainty to businesses that there will be no charge on those transactions going forward.

Prior to its removal, the 1.5% charge on issues was regarded as an expensive obstacle for listed companies wishing to raise capital from overseas investors. It had a negative impact when such companies issued shares, including on the acquisition or takeover of other companies. By permanently removing the charge, the Government are supporting the competitiveness of UK capital markets and making it clear that we are open for business. The changes took effect on 1 January 2024, which ensured that the 0% charge continued seamlessly following the changes made by the REUL Act taking effect.