Stamp duty on shares is a tax paid when you buy shares in most UK companies. It is charged on the purchase, not the sale, and it has been part of the UK system for a very long time. With the Autumn Budget due on 28 October, debates about the tax tend to resurface, so it helps to understand what it is, who pays it and how it affects different ways of trading.
The basics
When you buy shares in a UK-incorporated company, you usually pay a tax on the value of the purchase. For most electronic trades, which is almost everything today, this is technically called Stamp Duty Reserve Tax. The traditional stamp duty applies to the much rarer case of shares bought using a paper stock transfer form. In everyday conversation, both are simply called stamp duty.
The standard rate has long been 0.5 per cent of the value of the purchase. So, as an illustration, buying £2,000 worth of shares would usually mean paying about £10 in stamp duty, on top of any dealing fees. Your broker normally collects it automatically, so you may only notice it as an extra line on your contract note.
Who pays it
The buyer pays. If you sell shares, you do not pay stamp duty on the sale, although you may have other costs and tax considerations, such as capital gains.
The tax applies to shares in UK companies regardless of where the buyer lives. It generally does not apply to shares in overseas companies, even if you buy them through a UK broker, although other countries may have their own transaction taxes.
Common exemptions
There are some important exceptions, and rules can change, so it is always worth checking official guidance or your broker. Commonly cited examples include:
- Shares admitted to certain growth markets, such as AIM, which have generally been exempt.
- Many exchange traded funds, which are not usually charged on purchase.
- Some transfers that are not purchases, such as gifts.
Investment trusts, by contrast, are UK companies, so buying their shares normally does attract stamp duty.
CFDs and spread bets
This is where many UK traders notice a difference. When you trade a CFD or a spread bet on a UK share, you do not own the underlying share. You are entering a contract that tracks its price. Because there is no purchase of the share itself, stamp duty does not apply in the usual way.
That is one reason these products are popular for short-term trading. However, they come with their own costs, including spreads and overnight financing, and they use leverage, which can magnify losses as well as gains. Our guide to spread betting versus CFDs covers the main differences. Tax treatment depends on your individual circumstances and may change in future.
Why it comes up around the Budget
Stamp duty on shares raises money for the Treasury every year, but critics argue it makes UK shares less attractive than those in markets without a similar tax. That argument tends to get louder whenever there is concern about London’s competitiveness as a place to list and invest.
Supporters of the tax point out that it is simple to collect and raises a meaningful sum. Any change would need to be weighed against the public finances. Our explainer on the Office for Budget Responsibility looks at how Budget measures are assessed.
As with any Budget speculation, rumours are not policy. It is wise not to trade on assumptions about tax changes until they are actually announced.
What it means for your trading
For longer-term investors, a 0.5 per cent charge on buying is a modest but real cost. For frequent traders buying and selling UK shares directly, it can add up quickly, because it applies every time you buy. Building it into your expected costs, alongside dealing charges and spreads, gives a more honest picture of whether a strategy is worthwhile.
Bringing it together
Stamp duty on UK shares is a tax paid by the buyer, usually at 0.5 per cent, on purchases of shares in UK companies. There are exemptions, and products such as CFDs and spread bets work differently because you do not own the share. It often features in Budget debates, but only announced changes should shape your plans.
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