Stamp duty is a tax on documents, which applies to stock transfer forms transferring shares and securities.
It is a different tax from stamp duty land tax (SDLT), which is payable on property and land transactions in England and Northern Ireland.
Stamp duty is not payable on transfers of unlisted shares and securities sold on "recognised growth markets", such as the Alternative Investment Market (AIM) and the ICAP Securities & Derivatives Exchange (ISDX), or on purchases of shares in exchange traded funds. Stamp duty is also not payable when new shares are issued.
A document transferring shares or securities is subject to stamp duty if it is signed in the UK, regardless of where in the world the assets being transferred are based. A document which is signed outside the UK can be subject to stamp duty if it relates to property in the UK, or anything to be done in the UK.
Stamp duty is payable by the purchaser. There is no direct obligation to pay stamp duty; however, unstamped or insufficiently stamped documents are not admissible evidence for any purpose other than during criminal court proceedings. In addition, a company secretary cannot register a share transfer unless the document has been properly stamped.
The rate of stamp duty is 0.5% of the total consideration for the transfer, rounded to the nearest £5.
Stamp duty is not payable when shares are transferred for less than £1000 (including any connected transfers). Stamp duty does not have to be paid on gifts of shares.
Stamp duty must be paid within 30 days of the transfer documents being signed. Failure to meet this deadline can result in penalties and interest being charged. Original documents used to have to be sent to the Stamp Office to be physically stamped. This is no longer the case. Stamp duty is now paid electronically, with HM Revenue & Customs (HMRC) notified by email of the payment with a scanned copy of the document the duty relates to.
Guidance on paying stamp duty
Share acquisitions
Where a company is being purchased by way of a share acquisition, it is sometimes difficult to ascertain the exact price that will be paid for the shares because it may depend upon accounts that have not yet been drawn up. If these accounts are not available soon after a transaction, the purchasing company should estimate the amount of stamp duty that will be payable and pay it within 30 days of the transaction being completed. See our Out-Law guide for further details: Stamp Duty implications for corporate transactions.
Where shares are transferred in exchange for other shares, stamp duty is charged on the value at the date of the share transfer document of the shares to be issued in exchange.
Group relief
Where assets are transferred between companies which are within the same group, relief may be available from stamp duty. The conditions for the relief are complex and are only considered in outline in this guide.
Broadly, for group relief to be available one company must be the beneficial owner of at least 75% of the ordinary shares of the other, or another company must be the beneficial owner of at least 75% of the ordinary shares of each company.
A company is the beneficial owner of at least 75% of the ordinary shares if it holds 75% of the ordinary shares, 75% of the rights to dividends and 75% of the rights to assets if the company is wound up. The ownership does not need to be direct and can be traced through other group companies.
Anti-avoidance provisions prevent group relief being available in certain circumstances - notably, where the transfer is made in connection with an arrangement under which the transferee company will cease to be in the same group of companies as the transferor – for example, following a sale out of the group.
Group relief is obtained by emailing a letter to HMRC, usually signed by a director or the company secretary of the parent company, together with a scanned version of the stock transfer form and any other required documents.
Stamp duty reserve tax (SDRT)
SDRT is a tax on agreements to transfer chargeable securities. Chargeable securities include: stocks, shares and certain loan capital. As with stamp duty, transfers of shares on recognised growth markets are exempt from SDRT.
SDRT can apply to the same transactions as stamp duty, meaning that both an agreement to transfer shares and the signed transfer document can be subject to tax. However, when the transfer document is stamped within six years of the agreement, the SDRT liability is cancelled to avoid a double charge.
SDRT does not apply to the issue of new shares. Purchasers must pay SDRT at 0.5% on the purchase price of the shares.
The UK system that transfers shares electronically is called CREST. CREST will collect SDRT for shares that are transferred electronically. SDRT is also relevant in the case of placings, rights issues and other Stock Exchange transactions.
Future Reform
In April 2023, the government published proposals to modernize the UK’s stamp tax on shares framework by replacing the current system with a single tax on securities rather than having both stamp duty and SDRT. To date, there has been no announcement as to when, if at all, a new framework may be introduced.
Contact an adviser
