Meaning
Indirect tax on the electronic transfer of shares in United Kingdom companies applies when an agreement to transfer securities is made. The stamp duty reserve tax is calculated at zero point five percent of the consideration paid for the shares. It differs from the physical stamp duty which applies to paper instruments.
The tax is typically handled through the crest settlement system during public market trades.
Transaction Charge
Paperless trading triggers the liability immediately upon the execution of the bargain. While a physical transfer of a stock certificate uses a different levy, the stamp duty reserve tax covers all dematerialized transactions.
Settlement Process
Financial institutions collect the tax and remit it to the revenue authorities on behalf of the buyer. The automation within the system ensures that the stamp duty reserve tax is paid before the legal title to the shares moves between accounts. If the transaction occurs outside of a recognized exchange, the buyer must report and pay the tax manually within a specific timeframe.
This prevents the accumulation of unpaid levies in private equity deals.
Statutory Exemption
Intermediary relief prevents the double taxation of shares held by market makers and clearing houses. Specific rules for stamp duty reserve tax allow these participants to move stock without incurring the charge if they hold it for short periods. Exemptions apply to recognized market makers.
