Stamp duty reserve tax (SDRT) was introduced under Finance Act 1986 to ensure that a form of tax equivalent to stamp duty would continue to be payable on the transfer of uncertificated shares. At that time, it was expected that the TAURUS share trading system would come into operation. In the event, SDRT was adapted for the charge to trading in uncertificated shares in CREST, and is charged on agreements to transfer shares and other securities. SDRT is not a stamp tax, but a self-assessed transfer tax which is usually collected automatically by stock market participants (such as brokers) when a transaction takes place.
Stamp duty remains in force for shares and securities that are held in certificated form which can only be transferred by using a physical stock transfer form, and runs in parallel to SDRT on agreements to transfer shares. Since 1986, both stamp duty and SDRT have been charged at a rate of 0.5% of the consideration for the transfer of shares (in the case of stamp duty, rounded up to the nearest £5). The same transaction may include an agreement to transfer shares which may trigger a liability to SDRT, and the agreement may later be completed by a transfer of the shares which is liable to stamp duty. Provided that the transfer is stamped within 6 years, the charge to SDRT is cancelled to avoid a double charge.
A higher rate of SDRT at 1.5% is charged for the issue or transfer of shares to a person who operates a depositary receipt scheme or a clearance service (other than CREST, which is exempted). The higher charge compensates for the fact that later transfers of depositary interests or through the clearance services will not attract SDRT.
It is widely expected, although the UK Treasury may wish otherwise, that as a practical matter SDRT will not ultimately survive the introduction of the EU Markets in Financial Instruments Directive (MiFID.) which is designed to create a single market in financial services across the EU. As currently operated, SDRT will create a number of tax, legal and operational barriers that could effectively present an uneven playing field. It is totally unclear how UK Tax Authorities could hope to police transctions wholly effected in other member states.
There is little sign that this is clearly understood by the UK Government nor even faintly comprehended by the UK Stamp Office who are still stuck on the concept of imposing SDRT on transactions effected on national exchanges