Guide to Stamp Duty On Shares

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Short-term traders in the UK are very aware of the stamp duty paid during every share transaction. But investors adopting the Foolish philosophy of buying and holding shares for the long term might not fully know or understand what it is, why it is collected or how much is collected with every transaction.

Stamp duty collected by the exchange is nothing new. In fact, it was first introduced in the UK in 1694, but its roots can be traced back to the Roman Empire in the sixth century. Today, stamp duty serves a slightly different role than it did in the 15th century.

Let’s dig in.

What is the stamp duty on shares?

Stamp duty 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.

Newer traders often fail to account for this fee, not realizing that it can add up over time and take a meaty chunk out of profits. It is important for regular traders and investors to account for stamp duty to calculate the most accurate estimate of possible returns from trades.

How much is stamp duty?

Stamp duty differs for share purchasers and share transfers.

On share purchases

Stamp duty on electronic purchases is 0.5% and is usually collected automatically as part of the transaction fees for that particular trade.

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.

On share transfers

Stamp duty reserve tax (SDRT) is a tax on agreements to transfer chargeable assets from one private party to another. These include common investment instruments like shares, bonds, loan capital and ISAs.

However, these transfer fees are exempt if the original buyer holds the stock for over six years. This is to avoid double chargers in the form of stamp duty for first ownership and stamp duty reserve tax on long-term investments. But in cases where the asset is held for lesser than six years, the transfer could be subject to both stamp duty and SDRT.1

The value of SDRT collected during a transfer is measured at 0.5% of the total value of the asset in question. And this is collected alongside the share transfer certification. The UK now uses the CREST system to collect SDRT when the transaction is made electronically. For non-electronic payments, the investor must calculate the right value of SDRT and send a notice to the HMRC with the payment.2

Who pays stamp duty on shares?

Any trader or investor looking to buy shares in a company listed in the UK is subject to stamp duty. The costs are usually collected from the buyer or the firm purchasing shares and not from the listed firms with shares on the market.

The stamp duty is paid by the person who is looking to buy shares or transfer shares to their personal wealth portfolios. This is not collected if the parent company executes a share buyback, in most cases.

Stamp duty is paid by big money trading firms as well when they acquire a larger portion of a company through listed shares compared to the average individual trader. The percentage collected remains the same which is why as investor capital increases, it is prudent to account for stamp duty and stamp duty reserve taxes.

When do you pay stamp duty on shares?

SDRT is paid when investors purchase shares electronically, calculated at 0.5% of the total transaction value.  If a person purchases shares using a stock transfer form, you’ll pay Stamp Duty if the transaction is over £1,000, again calculated at 0.5% of the total transaction value.

Stamp Duty is applicable to non-UK companies that are listed on the London Stock Exchange as well. It is also applicable when an investor acquires interest in shares, for example, an interest in the money from selling or staking them.

How is it calculated?

Most digital stock market portals calculate the final stamp duty reserve tax rates automatically and it is displayed in the final transaction screen before the order is sent to the exchange.

The final transaction amount usually includes the 0.5% tax that will be transferred via CREST.

Shares bought physically, too, require a 0.5% payment of stamp duty of the total transaction value. For example, a £1000 transaction would require a £5 stamp duty tax to be paid.

How to pay stamp duty on shares in the UK

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 as a separate item on your contract note.

When do you not pay stamp duty tax?

There are a few ways to avoid paying stamp duty 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).

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.

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.

Article Sources


  1. Gov.UK, “Pay Stamp Duty Reserve Tax”.
  2. Gov.UK, "“HM Revenue & Customs”.

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