Autumn Statement 2015: Stamp Duty Reserve Tax: options abuse

Stamp Duty Reserve Tax (“SDRT”) is levied on the purchase price of shares. Transactions in options to acquire shares are outside the scope of the tax.

This means that it is possible to save SDRT by selling, at a high price, an option to acquire valuable shares. The purchaser then pays a low price to exercise the option and SDRT is levied on that lower price.

The aggregate consideration that the vendor receives is likely to be the same as if he had sold the shares outright for their full market value but the liability to SDRT is calculated on a far lower basis.

The change announced in the Autumn Statement will affect the treatment of “deep in the money” options, which are used to transfer shares to issuers of depository receipts and clearing services.

We do not have draft legislation at this stage, but the risk is that innocent transactions in options may be affected. If the change is tightly targeted, it will only affect narrow categories of transactions in shares and is unlikely to have a significant impact on most individuals or entrepreneurs.