What is Stamp Duty?
While many of us are familiar with Stamp Duty Land Tax (SDLT) that’s 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 is 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 per cent and is normally collected automatically as part of a transaction fee.
With traditional paper share certificates, stamp duty is also charged at 0.5 per cent 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 ISAs — from one private party to another.
The rate of SDRT is calculated as 0.5 per cent of the total value of the relevant asset and is collected at the same time as share transfer certification.
In the UK the CREST (Certificateless Registry for Electronic Share Transfer) 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?
As we’ve discussed, most digital stock market portals 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 per cent tax rate, so for example, if your transaction is £1,000, you’ll need to pay £5 in stamp duty.
