Stamp Duty and Stamp Duty Reserve Tax on share transfers

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:

• the price paid for shares is greater than £1,000, and
• the sale is recorded on a Stock Transfer Form

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.

Difference between Stamp Duty and Stamp Duty Reserve Tax

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.

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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.

When does Stamp Duty or SDRT apply?

Stamp Duty or SDRT on shares applies when you buy:

• existing shares in a limited company registered in the UK
• share options
• interest in shares
• shares in a foreign company that has a share register in the UK
• rights arising from any shares already owned

When does Stamp Duty or SDRT not apply

No Stamp Duty or SDRT is due when:

• shares are given for free
• purchasing a new issue of shares in a limited company
• buying shares in an open-ended investment company (OEIC) from a fund manager
• buying units in a unit trust from a fund manager
• buying foreign shares outside of the UK (however, other taxes may apply)
• purchasing shares in an exchange-traded fund (ETF)
• the share transfer qualifies for exemption or relief

Calculating Stamp Duty and Stamp Duty Reserve Tax

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.

See also: What is a corporate shareholder?

‘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.

Stamp Duty on shares transferred on a Stock Transfer Form

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.

Example 1

• You buy shares for £950 using a Stock Transfer Form
• No Stamp Duty to pay

Example 2

• You buy shares for £1,100 using a Stock Transfer Form
• Stamp Duty at 0.5% of £1,100 = £5.50
• Rounded up to the nearest £5, your Stamp Duty payment is £10

Example 3

• You buy shares for £5,205 using a Stock Transfer Form
• Stamp Duty at 0.5% of £5,205 = £26.025
• Rounded up to the nearest £5, your Stamp Duty payment is £30.00

Stamp Duty Reserve Tax on electronic share transfers

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.

Example 1

• You pay £950 for shares bought electronically through CREST
• Stamp Duty Reserve Tax at 0.5% of £950 = £4.75
• Your SDRT payment is £4.75

Example 2

• You pay £1,100 for shares bought electronically through CREST
• SDRT at 0.5% of £1,100 = £5.50
• Your SDRT payment is £5.50

Example 3

• You pay £5,205 for shares bought electronically through CREST
• SDRT at 0.5% of £5,205 = £26.025
• Rounded down to the nearest penny, your SDRT payment is £26.00

Special share arrangement

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.

How to pay Stamp Duty on share transfers

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:

• Faster Payments through online or telephone banking – processed on the same day or next day, including weekends and bank holidays
• CHAPS – processed on the same day or next day if paid within your bank’s hours of payment processing
• Bacs – payments usually take three working days to be processed
• Cheque – allow at least three working days for your cheque to reach HMRC by post

See also: The Return of Allotment of Shares explained

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.

Paying Stamp Duty Reserve Tax

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.

How to complete a Stock Transfer Form

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:

• Consideration money – the total amount of money paid for the shares or the non-cash consideration given as payment for the shares. Write ‘nil’ if no consideration is given
• Name of undertaking – the company in which the shares are held
• Description of security – class and nominal value of shares being transferred (e.g. Ordinary shares of £1)
• Number of shares being transferred
• Registered holder – the name and address of the shareholder who is transferring/selling the shares. If the registered holder is deceased, enter the name of the executor or legal personal representative acting on behalf of the deceased shareholder
• Date of transfer
• Signature of the transferor (the seller or representative of the seller)
• Full name and full postal address of new shareholder (the person to whom the shares are being transferred)

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:

• £1,000 or less is being paid for the shares, and
• the transaction does not form part of a larger share transfer or series of transfers where the total is greater than £1,000

Certificate 2 should be completed if:

• the share transfer is exempt from Stamp Duty and no relief is being claimed, or
• the amount paid for the shares is not a chargeable consideration

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.

See also: Corporation Tax for limited companies

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.

How to get a Stock Transfer Form stamped

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.

Common errors on Stock Transfer Forms

HMRC may reject a Stock Transfer Form for a number of reasons, the most common of which are:

• the form has not been dated
• the form has not been signed
• the Stamp Duty has not been rounded up to the nearest £5 on each form
• the consideration value has not been included on the form
• part of the form has been completed incorrectly
• the form is illegible
• correction fluid or adhesive labels have been used to rectify mistakes on the form
• where applicable, agreements or supporting documents have not been included

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:

• issue a new share certificate to the person receiving the shares
• update the company’s statutory register of members
• update the company’s Register of People with Significant Control (PSC register), if applicable
• add the new shareholder’s details to the public register at Companies House when the next Confirmation Statement is filed

Failure to get a Stock Transfer Form stamped

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:

• to add your details to the company’s register of members or PSC register
• to add details to the public register at Companies House
• to prove ownership of the shares
• as security for a loan
• to comply with legal requirements

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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.

Relief and exemption from Stamp Duty and SDRT

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:

• shares that are received as a gift with no consideration due
• shares that are inherited under a Will
• shares transferred between spouses or civil partners upon marriage or entering into a civil partnership
• shares held in trust that are transferred between trustees
• transfers that a liquidator arranges as settlement when a company is wound up
• shares that are held as security for a loan and transferred back to the shareholder once the loan has been repaid
• shares transferred to beneficiaries of a trust when it is being wound up
• shares transferred upon divorce or the dissolution of a civil partnership
• certain types of loan capital
• shares admitted to trading on HMRC recognised growth markets but are not listed on a recognised stock exchange

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:

• transfers between companies that are part of the same group (known as ‘group relief’)
• some company acquisitions, if both companies are owned by the same people
• some company reconstructions, when all or part of a company’s trade is transferred
• the purchase of shares by a charity
• shares sold to a recognised intermediary
• repurchases and stock lending

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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.

Stamp Duty Help and Advice

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!

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• Stock Transfer Form transferring legal ownership of the share(s)
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