Tax on Buying Shares
From a taxation point of view, share transactions can be an expensive business; both the buyer and the seller will be required to pay a duty. When you are buying shares you will have to pay one of two types of tax, depending on the way in which the transaction was conducted.
Stamp Duty Reserve TaxToday, stock transfers most frequently take place electronically. If you are buying shares through a stockbroker, it is almost certain that this transaction will use the CREST system. CREST, or Certificateless Register of Electronic Stock and Shares Transfer, has become the industry standard for electronic transfer, and results in a paperless transaction in which no certificate is issued. In these instances, the tax payable is known as Stamp Duty Reserve Tax.
Stamp Duty Reserve Tax, or SDRT is paid at a flat rate. This is currently set at 0.5%. It is important to note, however, that the amount of tax that you will pay is based on the price that you pay for the shares, rather than what they are actually worth. So, if you are given the shares and pay nothing in exchange for them, you will not be required to pay any tax. If you paid cash for them, however, you will be required to pay 0.5% rounded to the nearest penny. This means that any transaction in which you pay less than £1,000 for shares will still incur a £5 SDRT charge. Finally, shares are occasionally exchanged for goods or services; in these cases, your SDRT liability will be calculated as 5% of the equivalent cash value of whatever it is that was exchange for the shares.