When you buy UK shares, you pay a tax or duty on the transaction.
This is called Stamp Duty Reserve Tax for ‘paperless transactions’. It’s deducted from what you pay for the shares – this might be different from their current market value.
For transactions using a stock transfer form, you pay a duty called Stamp Duty.
You pay tax when you buy:
- Existing shares in a company incorporated in the UK
- An option to buy shares
- Rights arising from shares, eg the rights under a rights issue
- An interest in shares, eg an interest in the money from selling them
You don’t have to pay tax if you:
- Are given shares for free
- Buy new shares in a company
- Buy shares in a foreign company (including foreign companies that maintain a share register in the UK)
- Buy units in a unit trust
- Invest in an ‘open ended investment company’ (the trust or company pays the tax, so you don’t have to)
It’s not just paying for shares in cash that’s taxable. If you give something in exchange for the shares, you pay tax on the value of what you gave for the shares.
If you buy shares electronically (through the ‘CREST system’) the tax is automatically deducted. This tax is known as Stamp Duty Reserve Tax.
When you buy shares through a stockbroker, tax will be automatically deducted at 0.5% as this is a paperless transaction.
If you use a stock transfer form when you buy shares, then it’s a paper transaction and you’ll have to pay Stamp Duty if the transaction is over £1,000. You pay 0.5% duty, which will be rounded up to the nearest £5.
‘Depositary receipt schemes’ or ‘clearance services’
You’ll have to pay tax at 1.5% if you transfer shares into some ‘depositary receipt schemes’ or ‘clearance services’. This is when the shares are held by a third party and can be traded free of Stamp Duty or SDRT. Not all schemes work like this though – with some of them you pay tax in the normal way.
Help and advice
For help and advice with Stamp Duty Reserve Tax and Stamp Duty, contact the Stamp Taxes helpline.
Stamp Taxes helpline
0845 603 0135
Monday to Friday 8.30am to 5pm
You might have to pay Capital Gains Tax on income from selling shares. There are different rules for working out the tax you have to pay on gains from shares. You may not have to pay any tax if you give away shares.
If you have to pay Capital Gains Tax and you don’t tell HM Revenue & Customs (HMRC) before 5 October after the end of the tax year, you may have to pay a penalty.
Shares gained through your job
If you get shares through your job, there are different rules for how this affects Capital Gains Tax. Read ‘Helpsheet 287′ to find out about this.At Bizorb we aim to provide the most accurate and up to date information to you. This article contains public sector information licensed under the Open Government Licence v1.0. If you spot any errors in this article please let us know.