Stamp holiday for IPOs

The government has in today's budget announced a 3 year stamp tax holiday for UK company IPOs with effect from tomorrow.

The UK is unusual in levying stamp tax (technically stamp duty and stamp duty reserve tax (“SDRT”)) on transfers of shares at the relatively high rate of 0.5% of the price paid for the shares. Industry bodies have for some time called for this tax to be abolished on the basis that the revenue generated does not offset that lost as a result of internationally mobile corporate groups choosing other venues for their headquarters and listing. The IPO holiday announced today is a welcome step in the right direction.

Global corporate groups have three choices. Locate their headquarters in the UK and list here. Locate the headquarters here and list elsewhere, or avoid the UK altogether. Before today's announcement stamp tax was an obvious disadvantage of the first option. The second option has increased in popularity, with direct listings on NASDAQ and NYSE increasingly replacing ADR issues. No stamp tax applies in the US and that is a permanent feature, not a time limited deal.

The government hopes today's announcement will encourage UK listings. Sensibly the measure takes effect from tomorrow (otherwise it could have had the opposite effect to that intended – pausing any planned IPOs whilst companies waited for the holiday to start). There is a hint that the holiday might be extended – The budget document says “while recognising the need to maintain responsible fiscal policy, the government will continue to evaluate Stamp Taxes on Shares to ensure the UK is positioned well for the future, and best supporting the competitiveness of our world-leading capital markets.”

The budget papers also include the latest instalment of the slow-moving “Modernisation of Stamp Taxes on Shares”. So far that process has looked to unite the patchwork of stamp duty and SDRT rules into a combined, modernised and digitally administered tax. It now has a name without “stamp” in it – the Securities Transfer Charge (“STC”). The rules as they stand are something of an anachronistic embarrassment so the new STC is eagerly anticipated. The holiday for IPOs is welcome in expanding the universe of exemptions which already includes most debt and shares listed on growth markets.

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Authored by Philip Harle and Katharine Crossman.