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
  • MH829567
    Re: What Does Road Tax Pay For?
    Road Tax doesn't pay for anything cos it don't exist. Vehicle Excise Duty or CAR tax pays for the environmental effects of the…
    9 July 2019
  • Sandra
    Re: Payment of Pensions
    I want my pension to be paid weekly not monthly can this be changed ?
    5 July 2019
  • Sandra
    Re: Payment of Pensions
    I want my pension to change from monthly to weekly can thus happen?
    5 July 2019
  • vic
    Re: How Will My Second Job Be Taxed?
    my son is at uni and works on a sat for 8 hrs, he has just started a full time summer job until uni goes back and has been…
    4 July 2019
  • Jane
    Re: How Will My Second Job Be Taxed?
    Hi, I've recently been offered 2 part time positions (very similar roles) and am wondering if I could accept both offers? In…
    4 July 2019
  • Stace
    Re: What is My Tax Code?
    I have two jobs but one job I only do about 20 hours a month but do more with the other one... I have different tax codes with both jobs?…
    28 June 2019
  • Nat
    Re: How Will My Second Job Be Taxed?
    Hi I have recently left my job to do some ad hoc work on a self employed basis. Working 1-2 days a week, work isn’t always…
    5 June 2019
  • Sharon
    Re: Claiming Tax Relief on Mileage
    I’ve just started working for a care firm who pays 30p a mile how do I claim up to 45p what do I need to do to claim the 15p
    2 June 2019
  • Macspod
    Re: Should I be Paid Mileage Allowance?
    Hi, My employer is applying rules that do not match the HMRC documents regarding what journeys should be paid mileage…
    31 May 2019
  • Bex
    Re: How Will My Second Job Be Taxed?
    I work 24 hrs per week at £11ph If I get another job working 16hrs per month at £12ph What will my tax be on the second…
    30 May 2019