Stamp duty on shares: how much is it and can I avoid paying?

In the UK, stamp duty is charged on share purchases and transfers.

This applies to all traders and investors, who must pay within 30 days of any transaction to avoid penalties. 

So, how does stamp duty differ between paper and online transactions? And is there anything you can do to avoid paying? 

Find out everything you need to know about stamp duty on shares below.

Summary

What is stamp duty? 

While many of us are familiar with Stamp Duty Land Tax (SDLT), which is payable on property transactions, stamp duty on the purchase of shares is less familiar.

In a nutshell, stamp duty is a tax on documents, which applies to stock transfer forms for transferring shares.

The documents must have been signed in the UK, and the tax due should be paid electronically to HMRC within 30 days of the signing to avoid penalty charges and interest. 

There are two different types of stamp duty, which apply to either share purchases or share transfers. 

Share purchases

The stamp duty on electronic share purchases is 0.5% and is normally collected automatically as part of a transaction fee. 

With traditional paper share certificates, stamp duty is also charged at 0.5% on transactions valued at more than £1,000. This is rounded up to the nearest £5. 

Share transfers

On share transfers, the tax is called Stamp Duty Reserve Tax (SDRT).

This is payable on agreements to transfer chargeable assets, such as shares, bonds and individual savings accounts (ISAs), from one private party to another.  

The rate of SDRT is calculated as 0.5% of the total value of the relevant asset and is collected at the same time as the share transfer certification.

In the UK, the Certificateless Registry for Electronic Share Transfer (CREST) system is used to collect SDRT.

When payment is made non-electronically, you need to calculate the correct level yourself and send a notice to HMRC with your payment. 

Who pays stamp duty on shares? 

Essentially, anyone buying shares in a UK company will need to pay stamp duty.

So if you’re looking to buy shares or transfer them to a personal portfolio, you’ll be liable.   

How is stamp duty on shares calculated? 

Most investment platforms will calculate stamp duty rates automatically, and the amount will appear in the final transaction screen before your order is sent to the exchange.  

Shares bought physically carry the same 0.5% tax rate, so for example, if your transaction is £1,000, you’ll need to pay £5 in stamp duty. 

Can you avoid paying stamp duty on shares? 

There are situations where you don’t have to pay stamp duty on shares you have bought, such as: 

• When you buy stock in a market outside the UK.
• When you buy gilts or corporate bonds.
• When you buy shares issued in a flotation (when a company first appears on the stock market or when new shares are offered in a rights issue).
• When you buy Alternative Investment Market (AIM) shares on the London Stock Exchanges or on exchange-traded funds.
• When you sell shares.

Invest in some professional advice

Venturing into buying and selling stocks and shares is a big step if you’re not a seasoned trader.

That’s why talking with a financial adviser before taking the plunge is worthwhile as their experience and expertise could save you time, hassle and money.  

Click below to match with the perfect financial expert for you.