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Money, tax and benefits
Tax on buying shares
When you buy UK shares you pay a tax on the transaction. This is called Stamp Duty Reserve Tax (SDRT) for 'paperless transactions' and Stamp Duty for transactions using a stock transfer form.
Stamp Duty Reserve Tax
When you buy existing shares through a stockbroker, the transaction is usually completed electronically through CREST (the electronic settlement and registration system). This is known as a paperless transaction.
How SDRT is worked out
You pay SDRT on paperless transactions for UK shares at a flat rate of 0.5 per cent. But this is based on what you give for the shares (called the ‘consideration’) - not what they're worth.
This means that:
- if you buy shares for £1,000 you'll pay £5 SDRT whatever the value of the shares themselves - SDRT charges are rounded up or down to the nearest penny
- if you don't pay cash but give something else of value in return for the shares, the SDRT's based on the value of what you give for them
- if you're given shares for nothing, you don't have to pay any SDRT
You can use the HM Revenue & Customs (HMRC) online calculator to work out how much SDRT is payable on share purchases - see the link below.
SDRT on shares, share options, rights and interests
You pay SDRT when you buy any of the following:
- existing shares in a company incorporated in the UK, or in a foreign company that maintains a share register in the UK
- units in unit trusts
- an option to buy shares
- rights arising from shares, like the rights under a rights issue
- an interest in shares, like an interest in the money from selling them
You don't pay SDRT if you subscribe for new shares in a company.
How SDRT is paid
When you buy shares through CREST the system automatically deducts the SDRT and sends it to HMRC. Your stockbroker will settle up with CREST for the cost of the shares and the SDRT and then bill you for these and their fees.
When you buy units in unit trusts or shares in open-ended investment companies SDRT is already accounted for in the price you pay for the units.
Stamp Duty on share transfers using paper forms
If you use a stock transfer form when you buy shares, then it's a paper transaction and you pay Stamp Duty, not SDRT.
Stamp Duty is payable on the same sorts of transaction and at the same 0.5 per cent rate as for SDRT (see above), but the duty is rounded up to the nearest £5. For example, if the ‘consideration’ (what you pay for them – in money or kind) is £1,050 the Stamp Duty payable will be £10.
However if the consideration is £1,000 or less or if you're given shares for nothing, you don't have to pay any Stamp Duty.
You can use HMRC’s online calculator (link below) to work out how much Stamp Duty is payable on share transfers using paper forms.
Getting the stock transfer form stamped and paying the Stamp Duty
If you pay more than £1,000 for your shares you'll need to get the stock transfer form stamped by HMRC and pay the Stamp Duty that’s due. You have 30 days from when you buy the shares to do this.
Send your completed stock transfer form together with a cheque made out to 'HM Revenue & Customs only' for the amount of Stamp Duty that’s due - if you've not already paid using another method note the reverse of the cheque with any reference number you've generated or chosen yourself.
To find out about other payment methods for paying Stamp Duty see the link at the end of this section.
Include with your payment and stock transfer form a covering letter that gives your address so the stamped documents can be returned to you. The letter should also quote your payment reference number if you've already paid the Stamp Duty using an electronic method (the reference number is the one that you've generated or chosen yourself).
If HMRC has given a formal opinion on how much Stamp Duty you need to pay, send any written agreement and supporting documents as well.
Send your documents to:
HM Revenue & Customs
Birmingham Stamp Office
9th Floor
City Centre House
30 Union Street
Birmingham
B2 4AR
Higher rate of SDRT or Stamp Duty for special share arrangements
You'll have to pay SDRT or Stamp Duty at a higher rate of 1.5 per cent if you transfer shares into a 'depositary receipt scheme' or a 'clearance service'. These are special arrangements where the shares are held by a third party and can be traded free of Stamp Duty or SDRT. (With some clearance services the higher rate isn't charged and Stamp Duty or SDRT is payable in the normal way when shares are traded.)
How SDRT and Stamp Duty are paid
Most share transactions are paperless transactions, which are completed electronically through CREST. CREST automatically deducts the SDRT and sends it to HMRC. Your stock broker will settle up with CREST for the cost of the shares and the SDRT and then bill you for these and the broker's fees.
If you don't buy shares through CREST you pay the Stamp Duty to HMRC yourself.
SDRT is already accounted for in the price you pay for units in unit trusts or shares in open-ended investment companies.
Tax on buying foreign shares
You don't have to pay UK Stamp Duty or SDRT if you buy foreign shares. But there may be foreign taxes that you'll have to pay.
Enquiries about SDRT
If you have any questions about SDRT you can phone HMRC on 0845 603 0135 between 8.30 am and 5.00 pm, Monday to Friday - closed on bank holidays.
