Stamp Duty On Shares
Stamp Duty is a very old tax. It was first introduced in the UK in 1694, but its roots can be traced back to the Roman Empire in the sixth century. Most people are familiar with paying it when they buy a house, but it’s also charged on share purchases as well.
Stamp Duty Reserve Tax, to give it its full name, is charged at 0.5% on share purchases made electronically (e.g. an online share dealing account). For non-electronic deals, Stamp Duty is charged at 0.5% on transactions valued over £1,000.
Although 0.5% may not sound like much, it can be a significant cost for frequent traders. Many City-based organisations have called for it to be abolished, to allow the London stock market to become more competitive against the major markets in the US and Europe. However, at least the rate at which it is charged is going in the right direction. Prior to 1984, stamp duty on shares was levied at 2%!
Your broker will automatically add it to the cost of any share purchase and pay the taxman on your behalf.
When you don’t have to pay Stamp Duty
Note that you don’t have to pay Stamp Duty when you buy shares in a market outside the UK and you don’t pay it when you buy gilts or corporate bonds either. And as of 28 April 2014, you no longer have to pay Stamp Duty when buying shares traded on the London Stock Exchange’s AIM market or on Exchange Traded Funds (ETFs).
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