Tax when you buy shares

Our experts tell you everything you need to know about taxes when investing in shares

Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust. Or you can check out our online calculator to see if you could be due a refund.

How are you taxed when buying shares?

You usually have to pay a transaction tax or duty of 0.5% when you buy shares. If you buy the shares electronically, you will pay Stamp Duty Reserve Tax (SDRT) and if you buy shares using a stock transfer form, you will pay Stamp Duty if the transaction is over £1,000.

If you transfer the shares into certain ‘depository receipt schemes’ or ‘clearance services’, you will have to pay tax at 1.5%.

You pay tax on the cost of the shares to you, even if their market value is higher.

The share transactions you will have to pay tax on are:

  • Existing shares in a company incorporated in the UK
  • An interest in shares, such as an interest in the money raised from selling them
  • Shares in a foreign company which has a share register in the UK
  • An option to buy shares
  • Rights arising from shares, such as rights you are granted when new shares are issued.

You wouldn’t have to pay tax if:

  • You are given the shares for free
  • You buy shares in an ‘open ended investment company’ (OEIC) from the fund manager
  • You buy units in a unit trust from the fund manager
  • You subscribe to a new issue of shares in a company

If you buy foreign shares outside of the UK, you won’t usually have to pay Stamp Duty or SDRT but you might be liable to pay additional income tax.

When you sell your shares, you might have to pay Capital Gains Tax, depending on how much of a gain (profit) you make on them.

What happens if you buy shares electronically?

You will have to pay Stamp Duty Reserve Tax (SDRT) if you ppurchase shares electronically through a system known as CREST (a computerised register of shares and shareowners).

This tax is taken automatically so there’s no need for you to do anything. It is charged at 0.5% for electronic share purchases.

If you don’t pay for your shares in cash, but instead give something else of value to pay for the shares, you pay the SDRT on the value of the item you gave for the shares.

If you receive the shares for free, you don’t have to pay any tax on them.

Shares bought ‘off-market’

Buying shares off-market refers to shares being transferred outside of the CREST system. You are still liable for SDRT if you buy shares in this way but tax won’t be automatically deducted if you use this method. So, if you buy shares off-market, you need to send HMRC a written notice with details of the share transaction. This written notice needs to include the following information:

  • The buyer and seller details
  • Which securities have been transferred and the number of them
  • Any relief or exemptions claimed
  • Details of the payment (or other exchange) including their monetary value
  • A reference number for HMRC to be able to identify the payment – you choose this reference number.

If you don’t pay the SDRT on time, you will be charged interest from the due date and you may also receive a penalty. If these shares could’ve been transferred through CREST but you chose not to use that system, you have 14 days from the date of trade to pay. If the transfer couldn’t be made by CREST, you have until the 7th of the calendar month after the trade agreement took place.

What happens if you use a stock transfer form?

If you buy shares using a stock transfer form, you will have to pay Stamp Duty if the transaction is over £1,000. You will pay 0.5% duty, rounded up to the nearest £5. For example, if you buy shares worth £1275, you will pay 0.5% duty on these shares which will be £6.38 which you will have to round it up to £10 to pay your Stamp Duty.

If the shares cost you less than £1,000, you don’t pay anything.

You need to send your stock transfer forms to the Stamp Office within 30 days of them being dated and stamped, and you will need to pay Stamp Duty to HMRC. If you don’t pay your Stamp Duty on time, you will receive a penalty.

Are there any special share arrangements?

If you transfer shares into certain ‘depository receipt schemes’ or ‘clearance services’, you will pay SDRT at 1.5%. These transfers are when the shares are transferred to a service which is operated by a third party, such as a bank. The shares could then be traded free of Stamp Duty or SDRT, so you are being asked to pay that duty in advance.

However, not all these schemes are taxed in this way – you need to check the details of your scheme with your stockbroker.

How can DSR Tax Claims help?

We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful.  Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax rebate. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

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