Home > Savings & Investments > Tax on Buying Shares

Tax on Buying Shares

By: J.A.J Aaronson - Updated: 10 Dec 2012 | comments*Discuss
 
Tax Buying Shares Transfer Stock Stamp

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 Tax

Today, 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.

Stamp Duty

Some individuals still carry out share transactions that involve a paper certificate or stock transfer form. These are known as ‘paper transactions’ and, in these instances, Stamp Duty rather than Stamp Duty Reserve Tax will apply. Stamp Duty can present a slightly more expensive option than SDRT as a result of the way in which the total liability is rounded. Stamp Duty is charged at 0.5%, as with SDRT, but the total amount chargeable is rounded up to the nearest £5. Any transaction in which a sum of less than £1,000 is exchanged for shares will, as with SDRT, incur a charge of £5. However, if the sum exchanged for the shares was between £1,000 and £2,000, the Stamp Duty liability would be £10. As with SDRT, if you are given shares without exchanging them for anything then you will not be required to pay any Stamp Duty.

Payment of tax

The way in which you pay tax on shares that you buy will again depend on the type of transaction that has taken place. If you are using CREST, the entire process should be automated and taken out of your hands; the system will automatically calculate how much tax must be paid, and your broker will forward this amount to HM Revenue and Customs. You will then be billed for your tax liability along with your broker’s fees. If you are paying Stamp Duty, however, you will be required to arrange payment directly to HMRC yourself through self-assessment.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • chendre
    Re: Claiming Tax Relief on Mileage
    Hi, I've just started working as a self employed courier driving my own car delivering parcels to customers addresses with…
    25 February 2018
  • marley
    Re: What Does Road Tax Pay For?
    Wow so agree with many comments here re blasted pot holes! here in Hertfordshire is same, its dodge the potholes on your journey to…
    25 February 2018
  • TheTaxGuide
    Re: How Will My Second Job Be Taxed?
    Needhelp - Your Question:Hi I work two jobs first one is a full time at 17,300 and the second one is part time at 5,000 how…
    23 February 2018
  • TheTaxGuide
    Re: How Will My Second Job Be Taxed?
    AnnaP - Your Question:Hello,i have 2 jobs,for the first one (part-time)i earn 7200 pounds/year before tax ,and for the second…
    23 February 2018
  • Needhelp
    Re: How Will My Second Job Be Taxed?
    Hi I work two jobs first one is a full time at 17,300 and the second one is part time at 5,000 how much will I get taxed.
    22 February 2018
  • AnnaP
    Re: How Will My Second Job Be Taxed?
    Hello,i have 2 jobs,for the first one (part-time)i earn 7200 pounds/year before tax ,and for the second one( full time) i…
    22 February 2018
  • TheTaxGuide
    Re: How Will My Second Job Be Taxed?
    Moff - Your Question:I have a job earning £8840 per annum so I don't pay tax. If I get a second job earning £5000 per annum…
    22 February 2018
  • TheTaxGuide
    Re: How Will My Second Job Be Taxed?
    MoiraL - Your Question:Hi, a friend of mine has have just hired an employee who they thought had resigned from his job, but…
    22 February 2018
  • MoiraL
    Re: How Will My Second Job Be Taxed?
    Hi, a friend of mine has have just hired an employee who they thought had resigned from his job, but it turns out he's taken…
    21 February 2018
  • Moff
    Re: How Will My Second Job Be Taxed?
    I have a job earning £8840 per annum so I don't pay tax. If I get a second job earning £5000 per annum how much tax will I…
    21 February 2018
Further Reading...
Our Most Popular...
Add to my Yahoo!
Add to Google
Stumble this
Add to Twitter
Add To Facebook
RSS feed
You should seek independent professional advice before acting upon any information on the TheTaxGuide website. Please read our Disclaimer.