In the UK, Stamp Duty tax is payable on the transfer of existing shares. Calculated at a rate of 0.5% of the sale price of the shares, Stamp Duty (SD) must be paid to HMRC by the purchaser (the new shareholder) when:
Any Stock Transfer Form that records share transfers of £1,000 or more must be sent to HMRC for stamping (hence the term ‘Stamp Duty’), along with the payment.
Existing shares that are bought and transferred electronically (i.e. paperless share transfers) are subject to Stamp Duty Reserve Tax (SDRT) at 0.5% of the sale price, even if the buyer pays £1000 or less for the shares.
Stamp Duty and SDRT do not apply to the issue of new shares.
Stamp Duty , which was first introduced in the UK in 1694, is a charge that is payable on documents (‘instruments’) transferring the beneficial interest of chargeable securities – e.g., shares sold or transferred on a physical Stock Transfer Form. Such documents need to be presented to HMRC to be stamped.
Stamp Duty Reserve Tax , which was introduced in the UK in 1986, is charged on transactions in shares that are transferred electronically without a written instrument of transfer (i.e., without a physical Stock Transfer Form). Such ‘paperless’ share transactions in the UK are transferred through CREST (Certificateless Registry for Electronic Share Transfer), which is an electronic share settlement system.
SDRT was established to address the increasing number of paperless share transfers that were outside the scope of Stamp Duty tax charges. Aided by the introduction of the CREST settlement system and the increase in online trading, SDRT now accounts for the vast majority of income arising from share transfers in the UK.
Stamp Duty or SDRT on shares applies when you buy:
No Stamp Duty or SDRT is due when:
The amount of Stamp Duty or Stamp Duty Reserve Tax that you will have to pay on the transfer of shares is based on the amount given (the ‘chargeable consideration’) for the shares, not the market value of the shares (if this is different). The chargeable consideration given for shares may be in the form of cash or non-cash payment.
‘Cash consideration’ includes any currency and may consist of notes and coins, cheques, banker’s drafts, electronic transfers of funds, and any other means that facilitate the transfer of money from one person to another.
‘Non-cash consideration’ includes tangible and intangible assets, such as stocks and shares in another company, real estate, inventory, material, equipment, labour, promised services, debt discharge, goodwill, and know-how.
When dealing with non-cash consideration, the amount of SD or SDRT that you pay should be based on the market value of the non-cash consideration at the date on which the agreement is made.
If you buy existing shares for £1,000 or less, there is normally no Stamp Duty to pay. If you give more than £1,000 for the shares, you will pay Stamp Duty at a flat rate of 0.5% of the chargeable consideration, rounded up to the nearest £5, on each document (i.e. each Stock Transfer Form) that needs to be stamped.
When you buy shares electronically, Stamp Duty Reserve Tax will apply, regardless of whether the chargeable consideration given is below or above £1,000. SDRT is also charged at a flat rate 0.5% of the total sale price, but it is rounded up or down to the nearest penny – it is not rounded up to the nearest multiple of £5.
If you transfer shares into certain ‘clearance services’ or ‘depositary receipt schemes’ operated by a third party, such as a bank, you may have to pay Stamp Duty or SDRT at 1.5%. This higher rate usually applies when transferring shares to a scheme that enables shares to be traded free of SD and SDRT. We advise checking the details of your particular scheme with your stockbroker.
Stamp Duty must be paid to HMRC within 30 days of the date on which the Stock Transfer Form is executed (i.e. signed and dated). Failure to pay Stamp Duty by the deadline may result in a penalty and/or interest being charged.
You can pay Stamp Duty in a number of ways, including:
When paying Stamp Duty via online or telephone banking, CHAPS, or Bacs, you must provide a payment reference to enable HMRC to identify your payment. The reference should be your name and the payment amount, with no spaces. For example, ASmith/10
Additionally, when paying via one of the first three options above, you must include a confirmation letter with your Stock Transfer Form, stating the payment reference, payment amount, and date of payment.
CREST automatically deducts Stamp Duty Reserve Tax from chargeable share transfers and sends it directly to HMRC, so there is no need to make a manual payment.
A Stock Transfer Form should be completed in block capitals, in blank ink, and include all of the details of the sale of the shares, including:
There are also two certificates on the reverse of the Stock Transfer Form, one of which may have to be completed.
Certificate 1 should be completed if:
Certificate 2 should be completed if:
There is no requirement to complete either certificate when there is no chargeable consideration given for the shares or when you are claiming relief from Stamp Duty. However, when applying for a relief, the Stock Transfer Form must be sent to HMRC for stamping, along with details of the relief that is being claimed.
If Certificate 1 or Certificate 2 is completed, or the consideration for the share transfer is nil, there is no need to send the Stock Transfer Form to HMRC for stamping. Instead, it should be sent to the company in which the shares are held.
In all other situations, the Stock Transfer Form must be presented to HMRC to be stamped. There is no need to send a copy of the form to Companies House.
You must send your Stock Transfer Form to HMRC to be stamped within 30 days of the date on which it is executed. The stamped form will only be returned once the Stamp Duty has been paid.
Provided there are no errors, Stock Transfer Forms are normally processed by HMRC within 10 working days of receipt, so you should expect to wait around 15 days for the stamped form(s) to be returned to you by post.
HMRC may reject a Stock Transfer Form for a number of reasons, the most common of which are:
Once the stamped Stock Transfer Form has been returned to you, it should be sent to the director or secretary of the company in which the shares are held, along with the share certificate. Subsequently, the company will:
If your Stock Transfer Form needs to be stamped but you fail to get this done, you cannot use the form for any purpose other than as evidence in criminal proceedings. This means that it cannot be used:
Failure to get the document stamped within 30 days of its execution may also result in a penalty and interest. Furthermore, if you do not pay Stamp Duty on time, you will be charged interest from the day after the payment deadline.
Certain share transfers qualify for exemption or relief from Stamp Duty and SDRT. If the transfer is exempt or there is no chargeable consideration, you do not have to pay either tax, nor do you need to tell HMRC about the share transfer. If the transfer qualifies for relief, you must apply to HMRC for confirmation of the relief, otherwise, you will need to pay the full amount of Stamp Duty or SDRT.
Share transfers that are normally exempt from Stamp Duty and SDRT include:
When a share transfer is exempt from Stamp Duty, there is no need to send the Stock Transfer Form to HMRC to be stamped. You will, however, need to complete Certificate 2 on the back of the form if you give a chargeable consideration of more than £1,000 for a share transfer that is exempt from Stamp Duty.
Share transfers that may qualify for relief from Stamp Duty and SDRT include:
Remember: even if Stamp Duty or SDRT tax relief is reduced to nil, you will still need to send the Stock Transfer Form to HMRC to be stamped.
To claim a relief from Stamp Duty, you must write to HMRC Birmingham Stamp Office to explain why relief is applicable. You will also need to enclose all of the relevant transfer documents with this letter.
If HMRC confirms that the transfer qualifies for relief, your documents will be stamped with a non-chargeable adjudication stamp. If HMRC rejects your relief claim, you will have to pay the required Stamp Duty. The transfer document will not be stamped until the payment is made in full.
HMRC provides full guidance on Stamp Duty reliefs and exemptions and SDRT reliefs and exemptions . You can contact the HMRC Stamp Taxes Helpline if you’re not sure whether your transaction is exempt or you need help in deciding whether you can claim relief.
Tax law is incredibly complex and always changing. If you are at all unsure about buying or transferring shares, paying tax on shares, or investing in general, we strongly recommend that you seek independent, professional tax advice before making any decisions. Getting it wrong can be costly!
At Rapid Formations, we offer a range of professional services to our clients, including a Transfer of Shares Service for just £129.99 + VAT. If you wish to transfer shares from one shareholder to another, we can prepare and issue all of the documentation required to complete the transfer, including:
The service can be ordered online and completed on the same day, provided all necessary information is supplied. We can also prepare and file your confirmation statements for £75.99, ensuring that shareholder information remains up to date on the public register at Companies House.