Tax when you buy shares
You usually pay a tax or duty on the transaction when you buy shares.
This is called Stamp Duty Reserve Tax (SDRT) for shares you buy electronically and Stamp Duty when you fill in a paper stock transfer form.
It’s deducted from what you pay for the shares - this might be different from their current market value.
Transactions you pay tax on
You pay tax when you buy:
- existing shares in a company incorporated in the UK
- an option to buy shares
- an interest in shares, eg an interest in the money from selling them
- shares in a foreign company that maintains a share register in the UK
- rights arising from shares, eg rights you have when new shares are issued
It’s not just paying for shares in cash that’s taxable. You pay tax on the value of what you gave in exchange for the shares.
When you don’t pay tax
You don’t have to pay tax if you:
- buy employee shareholder shares up to £50,000
- are given shares for free
- buy a new issue of shares in a company
- 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)
Buying shares electronically
Tax is automatically charged if you buy shares electronically (through the ‘CREST system’). This tax is known as Stamp Duty Reserve Tax (SDRT).
Tax will be automatically charged at 0.5% when you buy shares through a stockbroker, as it’s a paperless transaction.
Using a stock transfer form
You’ll have to pay Stamp Duty if you use a stock transfer form to buy shares and the transaction is over £1,000. A stock transfer form is classified as a paper transaction.
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 like you would for paperless or paper transactions.
When you sell the shares
You may need to pay Capital Gains Tax when you sell your shares.
Help and advice
Contact the Stamp Taxes helpline for help and advice with Stamp Duty Reserve Tax and Stamp Duty.
You can also hire a professional (eg a tax adviser) to help with your tax.