When it comes to buying and selling shares, understanding the regulatory frameworks is crucial for entrepreneurs and small businesses. Stamp duty is a tax payable on the purchase of shares and it is important for those engaged in buying, selling, or transferring shares to understand the stamp duty rules.
In this guide, we'll explore who pays stamp duty on shares, how to calculate what amount is payable, explain how to pay, and shed light on instances where this duty may be exempted.
What is stamp duty?
Most people know about stamp duty in relation to buying a property. When you buy a property, you pay stamp duty to the government. When it comes to purchasing shares, stamp duty operates in much the same way.
Stamp duty is directly related to the act of transferring ownership. It’s distinct from other taxes on financial transactions, such as capital gains tax, which is based on the profit made from the sale of shares.
Investors and market participants should be aware of the stamp duty regulations in their specific location, as rules can vary even within the UK. Failure to comply with these regulations can have severe consequences from fines through to legal action.
Who pays stamp duty on shares?
In the UK, anyone involved in buying shares in a company is subject to paying stamp duty. Whether you are an investor looking to expand your portfolio or an entrepreneur transferring shares within a personal portfolio, the obligation to pay stamp duty rests upon the purchaser of those shares.
How much is stamp duty on shares?
Determining the financial impact of stamp duty on shares involves understanding the calculation methods. For electronic share purchases, the stamp duty is fixed at 0.5 per cent, typically collected automatically as part of the transaction fee. In the case of traditional paper share certificates, transactions exceeding £1,000 incur a stamp duty of 0.5 per cent, rounded up to the nearest £5.
How to pay stamp duty on shares
You need to pay stamp duty on shares that are transferred using a stock transfer form, and are valued at over £1000. The stock transfer form needs to be signed and dated, and sent to the HMRC along with the payment within 30 days of buying the shares.
The gov.uk website also highlights that Stamp Duty Reserve Tax must be paid on electronic share transactions in a UK company. This is usually done through a system called CREST which automatically collects the tax and sends it the HMRC, meaning you don’t have to do anything.
When are share transfers exempt from stamp duty?
Despite the general rule that anyone purchasing shares in a UK company is liable for stamp duty, there are exceptions. You do not have to pay stamp duty on shares if:
- You purchase shares in a market outside the UK
- You purchase gilts or corporate bonds
- You purchase shares issued in a flotation, such as when a company first appears on the stock market or when new shares are offered in a rights issue
- Since 2014, stamp duty is not applicable on the London Stock Exchange's AIM (Alternative Investment Market) or on Exchange Traded Funds
- When you sell your shares
Do I pay stamp duty if I gift shares to someone?
When you gift shares to someone in the UK, stamp duty may be applicable. You still pay stamp duty on transfer of shares, regardless of whether that is a gift or a paid transaction. The transfer of shares as a gift is treated similarly to other share transfers, and stamp duty reserve tax (SDRT) may be imposed. Here are key points to consider when gifting shares and the potential implications of stamp duty:
Stamp Duty Reserve Tax (SDRT)
The tax applicable to the transfer of chargeable assets, including shares, is known as Stamp Duty Reserve Tax. When you gift shares to someone, the recipient may be subject to SDRT, and the tax is calculated at a rate of 0.5% of the total value of the relevant assets being transferred.
Exemptions and considerations
- If the transfer is between spouses or civil partners and is not subject to any consideration or payment, it may be exempt from SDRT
- Transfers of shares into a tax-efficient account, such as an Individual Savings Account (ISA), may also be exempt from stamp duty
Valuation of shares
The valuation of shares for stamp duty purposes is based on the market value of the shares at the time of the transfer. This valuation helps determine the amount of SDRT payable.
Notification to HMRC
Similar to other share transfers, when gifting shares, it is important to notify HM Revenue & Customs (HMRC) of the transfer. This involves providing the necessary information and calculating the SDRT due.
Professional advice
Given the complexities of stamp duty regulations, seeking professional advice, such as consulting with a financial adviser or a legal expert, is advisable. They can provide guidance on the specific circumstances surrounding the purchase and gifting of shares and help navigate legal aspects.
It's crucial to be aware of the potential stamp duty implications when purchasing shares and to ensure compliance with HMRC regulations. The specific details of the transaction, such as the relationship between the donor and the recipient or the buyer and the seller, the value of the shares, and the purpose of the transfer, can influence the stamp duty payment.
Get legal assistance from LawBite
When it comes to understanding purchasing shares and the stamp duty requirements, a legal expert can help guide you. If you’re unsure if you need to pay stamp duty on your shares, or want to discuss other aspects of share agreements or ownership, speak to one of our expert lawyers.
To speak to one of our experienced corporate lawyers book a free 15 minute consultation or call us on 020 3808 8314.
