WE'RE AVAILABLE
Mon - Fri: 9am - 5:30pm
CALL US NOW
0113 887 8432
June 1, 2022
By:

Tax When You Buy Shares - Introduction to Stamp Duty

What is Stamp Duty?

Stamp duty is a tax on 'instruments' relating to UK shares or securities, or if the 'instruments' are actually executed in the UK. Please note that the UK does not include the Channel Islands or the Isle of Man for these purposes.

Where there is 'consideration' payable on the transfer of shares, there will normally be the requirement to pay stamp duty and submit a stock transfer form within 30 days of the 'effective date' of the transfer.

Failing to have a stock transfer form correctly 'stamped' by HMRC is an offence and can lead to large penalties and interest imposed by HMRC.

If shares are transferred electronically with no instrument, stamp duty will not apply but stamp duty reserve tax will be payable (collected through the CREST system). This has not been considered any further in this article.

Amount of Stamp Duty and How to Pay?  

Stamp duty will be paid by the purchaser of the shares. Generally, transferring shares results in stamp duty payable at a rate of 0.5%. This means that the stamp duty will be 0.5% of the 'consideration' paid by the purchaser to the vendor for the transfer of shares.

Where shares are transferred to a clearance service or depositary receipt issuer, a higher rate of stamp duty of 1.5% can potentially apply. Please note there are some exceptions to this rule not considered in this article.

Once the relevant percentage figure has been applied to the consideration of the shares, the duty is rounded up to the nearest £5 to calculate the stamp duty payable. The taxpayer must then send the stock transfer form to HMRC for 'stamping' within 30 days of the ‘effective date’ of the transfer.

Stamp duty is not payable if the consideration does not exceed £1,000, therefore there will be no stamp duty payable on a purchase of shares for £1,000 or less. There is also no requirement to notify HMRC in this instance. However, the exemption certificate on the back of the stock transfer form may need to be completed.

Although traditional stamping of the instrument was used for over 300 years, transfer instruments are now to be submitted electronically. Details of this can be found here.

What is Consideration?

Consideration can include the following:

  • Cash;
  • Stock or marketable securities; and/or
  • Release or assumption of debt and other liabilities.

However, consideration for stamp duty can also include other forms. This prevents a purchaser seeking to avoid stamp duty by purchasing shares in non-cash form. Furthermore, the value of the non-cash asset offered in exchange will be treated as consideration and subject to stamp duty.

Sometimes the consideration for a transfer of shares may be unclear at the time of the transaction. In this case it would be advisable to seek professional tax advice.

Exemptions from Stamp Duty

No stamp duty is payable on certain transfers, including the following:

  • Transfers of shares by way of gift where no consideration is payable;
  • Transfers on marriage or civil partnerships;
  • Transfers on divorce or on dissolution of civil partnerships;
  • Transfers by the liquidator when a company is wound up;
  • The issue of new shares; and
  • Where stamp duty group relief applies.

Adjudication

HMRC are able to ‘adjudicate’ on any executed instrument if requested. Broadly speaking, adjudication is HMRC giving an opinion on whether stamp duty is payable, and if so, the amount payable. They can also be asked if a penalty is payable.

Following an adjudication, if it is decided that an instrument is not chargeable to stamp duty, it will notify the applicant in writing. Otherwise, it will be 'stamped' with the amount adjudicated and the corresponding amount that should be paid.

If you are unhappy with the adjudication, you have 30 days to file an appeal. However, an appeal can only be brought on the payment of the stamp duty, as well as any penalties and interest that would be payable as a result of HMRC’s decision.

If you have any queries on any of the information in this article, or need help with the calculation of stamp duty payable, please do not hesitate to get in contact with a member of the team for expert tax advice.

Disclaimer: This article is for general information only and is not intended to constitute individual advice. It is recommended that you seek independent tax advice before determining the stamp duty payable on the purchase of shares. 

Related Articles 

Share for share exchanges – could you benefit?

Contact us today to discuss your tax requirements.
CONTACT US
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram