Tax when you buy shares

1. Overview

When you buy shares, you usually pay a tax or duty of 0.5% on the transaction.

If you buy:

You’ll have to pay tax at 1.5% if you transfer shares into some ‘depositary receipt schemes’ or ‘clearance services’.

You pay tax on the price you pay for the shares, even if their actual market value is much higher.

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 has a share register in the UK
  • rights arising from shares, eg rights you have when new shares are issued

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)

You don’t normally have to pay Stamp Duty or SDRT if you buy foreign shares outside the UK. But you may have to pay other taxes.

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 with SDRT and Stamp Duty.

You can also get professional help (eg a tax adviser) with your tax.

2. Buy shares electronically

You’ll pay Stamp Duty Reserve Tax (SDRT) if you buy shares electronically through the ‘CREST’ system (a computerised register of shares and shareowners).

The tax is taken automatically when you buy the shares, so you don’t need to do anything else about your tax.

SDRT is charged at 0.5% when you buy shares electronically.

If you don’t pay cash for your shares but give something else of value to buy them, you pay SDRT based on the value of what you gave.

If you’re given shares for nothing, you don’t have to pay any tax.

Buying shares ‘off-market’

You must also pay SDRT on ‘off-market’ transactions. This is when shares are transferred outside CREST.

How to pay

Tax isn’t deducted automatically when you buy shares off-market.

You’ll need to send HM Revenue and Customs (HMRC) a written notice with details of the transaction.

If you don’t pay on time, you’ll be charged interest from the due date until the date you pay. You may also get a penalty.

3. Use a stock transfer form

You must pay Stamp Duty on your shares if:

  • you buy shares through a stock transfer form
  • the transaction is over £1,000

You pay 0.5% duty, which will be rounded up to the nearest £5.

ExampleIf you buy shares worth £1050, you’ll pay 0.5% on this amount which is £5.25. You’ll round this up to £10 to pay in Stamp Duty.

For shares under £1000, you won’t need to pay anything.

You’ll need to send your stock transfer forms to the Stamp Office no later than 30 days after they’ve been dated and signed.

You’ll also need to pay your Stamp Duty to HM Revenue and Customs (HMRC).

You may get a penalty if you don’t pay on time.

4. Special share arrangements

You pay Stamp Duty Reserve Tax (SDRT) or Stamp Duty at 1.5% if you transfer shares into some ‘depositary receipt schemes’ or ‘clearance services’.

This is when the shares are transferred to a service operated by a third party (eg a bank). The shares can then be traded free of Stamp Duty or SDRT.

Not all of these schemes work like this. Sometimes the higher rate isn’t charged and you pay Stamp Duty or SDRT in the normal way. Check the details of your scheme with your stockbroker.

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Source: gov.uk