ISA Bulletin 44 (PDF 93K) - HM Revenue & Customs

American Depositary Receipts
A depositary interest (including a depositary receipt ‘DR’) can be a qualifying
investment for a stocks and shares ISA (regulation 7(2)(ha)) but regulation 4(6)(a)(i)
requires the ISA account investor to have beneficial ownership of the investment.
The commonest type we see are American Depositary Receipts (ADRs).
The recent decision of the First Tier Tribunal in the Stamp Duty Reserve Tax case of
HSBC Holdings and Bank of New York Mellon v Commissioners for HMRC, UKFTT
163 (TC) has shown that in some cases beneficial ownership may not rest with the
underlying investor.
Where a DR is issued in the UK the HMRC view is that the holder of a DR is the
beneficial owner of the underlying shares so the DR can be a qualifying investment.
Where a DR is issued outside the UK the question of whether the holder of the DR is
the beneficial owner of the underlying shares will be determined by reference to the
law of the territory in which the DR is issued. Information on beneficial ownership
may be provided to investors by the depository. Where the relevant law means that
the holder of a DR is not the beneficial owner of the underlying shares, the DR
cannot be a qualifying investment that can be held in a stocks and shares ISA.
Where beneficial ownership of the underlying shares cannot conclusively be
determined by reference to the law governing the arrangements relating to the issue
of the DRs, for tax purposes HMRC will continue to determine beneficial ownership
according to its understanding of the principles of UK law. This means that HMRC
will continue to apply its longstanding practice of regarding the holder of a DR as
holding the beneficial interest in the underlying shares.
Invalid application to open a JISA
We have been asked for further clarification about what providers should do when a
JISA registered contact tells them the child has a CTF or another JISA. We've been
asked about 3 specific scenarios.
1) A JISA is opened by a parent. The parent later informs the manager that
the child is eligible for a CTF.
This could mean that the child already has a CTF or has become entitled to one -
for example, where a Child Benefit appeal for a period before 4 January 2011 is
settled.
The manager needs to have this confirmed in writing for their records. They can
then remove the JISA wrapper from the account. If the parent does not provide
confirmation in writing the manager must flag the account so that no further
subscriptions are accepted and no new management instructs can be accepted.
2) A JISA is opened by a parent who later informs the manager that they or the
other parent have opened a JISA elsewhere.
If the other JISA that has been opened is of the other type, then no further action
needed. If the other JISA is of the same type, then one of them must cease to be