You’ll probably have heard of investing, but you might not know what share dealing is. Having a share dealing account is very important if you want to start investing.
In this guide, you’ll find everything you need to know about share dealing to help you choose a platform like a pro!
What is share dealing?
Simply put, share dealing is the buying and selling of shares. Share dealing allows you to buy shares when you want to own part of a company or sell shares that you already own.
It may help to imagine share dealing as a big marketplace. There are thousands of publicly traded companies, and each has thousands or millions of shares that investors can buy and own.
Share dealing refers to the buying and selling that goes on in this marketplace. Just as selling a loaf of bread at a market in the town square requires a seller and buyer to agree on a price, for a given share to change hands in the share marketplace, a buyer and a seller need to agree on a price.
What types of share dealing are there?
There are two ways you can get involved in share dealing: through a share dealing broker or on your own through an online platform. These days, online share dealing is more common, but some people still use share dealing brokers.
Share dealing brokers
Using a share dealing broker used to be the main way to buy and sell shares. Brokers match up buyers and sellers to facilitate the share dealing process. They make trades for you, offer tailored advice and answer any questions that you have.
They charge a fee for this service that is usually quite high. In some cases, the cost may be £100 or £200 per hour, while in others, you may be charged a percentage of your total investment account – likely to be between 0.5% and 1%.
Online share dealing
These days, when we talk about share dealing brokers, we tend to mean dealing through websites online. The companies that operate these websites act as brokers for investors looking to buy and sell shares.
Human brokers are still involved in the process, but there are often computers matching the buyers and sellers.
An online share dealing service requires you to do a lot more on your own. You probably won’t receive personalised advice. However, many online share dealing sites offer general research and data to help you make your investing decisions.
As a result, the cost of online share dealing is usually quite a bit lower than when using a share dealing broker. While fees vary from platform to platform, a typical fee for buying (or selling) shares in a single company might be between £5 and £10.
Share dealing charges
There are many positives to share dealing, but you will also incur a number of charges. Here’s an overview of the main charges to expect.
Admin and maintenance fees
Most brokers charge a fee to keep your account open. You will have to pay this either monthly, quarterly or annually, depending on which platform you use to open your account.
This charge will likely be either a flat fee or a percentage of the total value of your portfolio.
Most brokers charge a flat fee – such as £10 per trade – but some charge a percentage of the trade value instead. If you’re a regular trader, you may be charged less commission – think of it as a frequent flyer discount!
A new broker won’t charge you if you transfer existing stocks across from an old broker, but the old broker could charge you a fixed fee per holding if you transfer your assets to another broker.
Reading the small print before you sign up to a particular broker will tell you whether you’re going to incur any exit charges.
You may be charged if you don’t make any trades during a certain period – normally a year.
As with all charges, the amount will depend on the broker. You could pay a flat fee or a percentage of the total assets you hold in your portfolio.
Share dealing taxes
Aside from your broker’s charges, you may also be liable to pay taxes on your share dealing. Currently, there are three types of tax you could pay on your share dealings.
1. Income Tax
This will depend on the tax bracket you fall under, so could be 20% if you’re a basic rate taxpayer, 40% if you’re a higher rate taxpayer or 45% for additional rate taxpayers.
2. Stamp Duty
Stamp Duty is charged at 0.5% of the purchase price when you buy UK shares.
You have to declare this and pay this through an online system called CREST.
3. Capital Gains Tax (CGT)
You pay capital gains tax if you make a profit of £12,300 or more from selling shares. This will be charged at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers.
Please note that the tax treatment of share dealing is subject to change, and you may incur higher charges.
Do you own the shares?
Yes, you own the shares you buy. However, it’s not quite that simple.
The type of ownership you have depends on how you bought the shares.
- Beneficial ownership: This occurs when you buy shares through a third party – like a broker. You still get any of the dividends issued and profit if you sell the shares.
- Direct ownership: This is when you buy shares registered in your name. This gives you all the rights of a shareholder, including voting in the company’s AGM. With direct ownership, you receive share certificates in your own name. Generally speaking, selling shares with beneficial ownership is quicker because you won’t need to transfer the certificates into the name of a third party.
How to start share dealing
If you’ve made it this far, you may well be planning to start share dealing yourself. Here are four steps you need to take to get started with investing.
1. Decide whether you want to work with a share dealing broker or an online broker
If you feel you need a dedicated person to work with on your share investments, then finding a human broker or financial adviser could be a good choice. You should make sure that your personal financial situation is a good fit for this service, as this often isn’t a good fit for those with lower income or lower investable assets.
2. Understand the fee structure
Fees are important, and you should make sure you understand the full fee structure for anyone you work with.
Depending on your needs, it’s possible to find advisers who work on a fee-only basis, which means that you’ll pay them an hourly fee – or fixed rate for a project – and owe them nothing beyond that.
Fee levels and structures vary, though, so, it’s very important that you understand the fees for any adviser or broker up front. Check out our broker cost calculator to get a better idea of what fees to expect with different brokers.
3. Research the service level
As important as fees are, you need to compare the level of fees for an online share dealing service with the quality of the service itself. Some online brokers charge extremely low fees but have websites that are more difficult to use (especially for beginners) and don’t offer bells and whistles like company research.
These types of sites might be good for experienced investors who just need a place to make low-cost share deals, but they may be a really bad fit for newer investors.
For that reason, it’s a good idea to look around the site to understand what features are available with the service.
4. Choose a broker
Now that you’ve done your research, you’re ready to pick a broker and get started. Our list of the top-rated share dealing accounts in the UK can help you pick the best share dealing account for you.