Stamp Duty On Shares

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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, where its full name is Stamp Duty Land Tax. But you also pay stamp duty on share purchases, although thankfully the percentage amount charged is a lot lower than it is for houses.

Stamp duty on shares

Stamp Duty Reserve Tax, to give it its technical name, is charged at 0.5% on share purchases of UK companies that are made electronically (for example, in an online share dealing account). It is rounded up to the nearest penny.

For non-electronic purchases of UK companies, i.e old-fashioned share certificates, Stamp Duty is charged at 0.5% on transactions valued over £1,000 and it is rounded up to the nearest £5

Overview

Although 0.5% may not sound like much, it can eat into your returns if you trade lots of shares on a frequent basis.

Many City-based organisations have called for stamp duty on share purchases 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 lower than it used to be. Before 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. You should see stamp duty listed as a separate item on your contract note.

Transactions you pay tax on

Stamp duty on share purchases is charged when you buy shares that already exist in a UK-incorporated company.

You also have to pay it if you buy an option or a right to purchase such shares.

Stamp duty on shares is also payable if you buy shares in a foreign company that maintains a share register in the UK.

If you buy shares through a broker then they should add stamp duty to your purchase cost automatically, if they think it is payable.

When you do not pay tax

You don’t have to pay Stamp Duty when you buy stock in a market outside the UK, and you don’t pay it when you buy gilts or corporate bonds either.

You don’t have to pay stamp duty on shares issued in a flotation, which is where a company first lists on the stock market, or new shares that are issued in a rights issue.

In a rule change introduced back in 2014, you don’t have to pay Stamp Duty when buying shares traded on the London Stock Exchange’s AIM market or on Exchange Traded Funds (ETFs).

When you sell the shares

There’s no stamp duty to pay when you sell a share.

However, if you hold shares outside of a tax-protected wrapper like an ISA or SIPP, then there may be another type of tax called capital gains tax to pay on any profits you have made. You get an annual capital gains tax allowance (currently £12,300) before any tax is due.

It’s important to keep any contract notes supplied by your broker, so that you have a record of your purchase and disposal costs for your tax returns.

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Frequently Asked Questions

Both companies and individuals have to pay stamp duty on share purchases.

Your broker will automatically add stamp duty to your purchase cost when you buy a share so you don’t need to calculate it or pay it separately to HMRC. You should see the stamp duty amount listed on your contract note.

Stamp duty is only charged when you buy existing shares in a UK company. Except in rare circumstances, it doesn’t cover shares in foreign companies, new shares issued when a company first joins the stock market, or units bought in an open-ended fund.

No, no stamp duty is payable when you buy shares that trade on the US markets.