STSM057030 | Depositary receipt and clearance services: exemptions/ reliefs: Non-sterling currency United Kingdom Bearer Instruments

No charge to Stamp Duty under Schedule 15 FA1999 arises on the transfer of a non-sterling UK bearer instrument, owing to paragraph 17 of Schedule 15 to FA1999.

No Stamp Duty charge arises when a non-sterling UK bearer instrument is transferred to a depositary receipt scheme or clearance service because no instrument of transfer is required. Owing to sections 95(2) and 97(3) FA1986 no 1.5% Stamp Duty Reserve Tax (SDRT) charge will generally arise on the transfer of a non-sterling UK bearer instrument into a depositary receipt scheme or clearance service.

The purpose of the exemption is to assist UK companies borrowing overseas in currencies other than sterling. However, a 1.5% SDRT charge will arise if the non-sterling UK bearer instrument is transferred to or appropriated by a depositary receipt issuer or transferred to a clearance service, does not ‘raise new capital’ and is not issued in exchange for such an instrument raising new capital, owing to sections 95(2)(b) and 97(3)(b) FA1986.

A bearer instrument is treated as ‘raising new capital' if:

• it is issued in conjunction with an issue of securities subscribed for solely in cash (see section 95 (2B) and 97 (3B) FA1986); or

• it is issued in conjunction with the grant of rights to subscribe for securities which are granted for cash only consideration and exercisable only by means of a cash subscription (see section 95 (2B) and 97 (3B) FA1986); and

• it relates to shares which carry a right to a dividend at a fixed rate but no other right to participate in profits (see section 95 (2D) and 97 (3D) FA1986); or

• it relates to loan capital within the meaning of section 78 FA1986. It should be noted that loan capital means the definition in section 78 (7) FA1986 and not the narrower scope of ‘exempt’ loan capital to which the provisions of section 79 (4) FA1986 apply; and

• the shares or loan capital cannot be converted or exchanged for chargeable securities other than non-convertible fixed rate shares or non-convertible loan capital (see section 95 (2D) and 97 (3D) FA1986).

A bearer instrument is considered to be issued in exchange for an instrument raising new capital if, and only if, it satisfies the new capital requirements and is exchanged for an instrument that satisfies those requirements. See section 95 (2C) and 97 (3C) FA1986.