Stamp Duty on Shares?
Discussion
Stamp Duty is not a tax, it's a "duty". There is a difference.
In the days before Income Tax, governments raised revenue by levying charges on movements of goods and assets. These charges were called "duties". A movement of produce, such as wheat, cattle, minerals etc might suffer an Excise Duty as it moved around the country or across national boundaries (hence Import Duties, which still exist).
The transfer of ownership of an asset, such as land and property or shares in an enterprise, was also subject to a duty in the form of "Stamp Duty". It was called "Stamp Duty" because the paperwork associated with the transfer of ownership or interest had to be submitted to a Stamps Office where the paperwork was given an official "Stamp" and a fee (the duty) levied.
Since the late 1980s, Chancellors had been stating their commitment to abolishing Stamp Duty as it was considered archaic and not relevant to the modern world. Eventually, Gordon Brown formally abolished (mostly - but not completely) old style Stamp Duty in his 2003 Finance Act - and immediately replaced it with a new tax called Stamp Duty Land Tax. As can be seen, SDLT relates to land and property transactions so the disposal and low value sale of shares largely dropped out of the system.
SDLT is NOT Stamp Duty.
Old style Stamp Duty still exists for some types of transactions, including transfers of shares. HMRC explains how these charges now apply to share transfers -
https://www.gov.uk/guidance/stamp-duty-on-shares#s...
In the days before Income Tax, governments raised revenue by levying charges on movements of goods and assets. These charges were called "duties". A movement of produce, such as wheat, cattle, minerals etc might suffer an Excise Duty as it moved around the country or across national boundaries (hence Import Duties, which still exist).
The transfer of ownership of an asset, such as land and property or shares in an enterprise, was also subject to a duty in the form of "Stamp Duty". It was called "Stamp Duty" because the paperwork associated with the transfer of ownership or interest had to be submitted to a Stamps Office where the paperwork was given an official "Stamp" and a fee (the duty) levied.
Since the late 1980s, Chancellors had been stating their commitment to abolishing Stamp Duty as it was considered archaic and not relevant to the modern world. Eventually, Gordon Brown formally abolished (mostly - but not completely) old style Stamp Duty in his 2003 Finance Act - and immediately replaced it with a new tax called Stamp Duty Land Tax. As can be seen, SDLT relates to land and property transactions so the disposal and low value sale of shares largely dropped out of the system.
SDLT is NOT Stamp Duty.
Old style Stamp Duty still exists for some types of transactions, including transfers of shares. HMRC explains how these charges now apply to share transfers -
https://www.gov.uk/guidance/stamp-duty-on-shares#s...
Eric thanks, really appreciate that but I have to say it feels like a tax 
I can just about get it if you're transferring an Ox in the 1700's and the village register needs updating, but in 2019 it does seem a little "because" given with online dealing this stuff is all done electronically.
I can just about get it if you're transferring an Ox in the 1700's and the village register needs updating, but in 2019 it does seem a little "because" given with online dealing this stuff is all done electronically.Funds are Collective Investment Schemes that are not traded on the stock exchange, so therefore there is no stamp duty to pay (this includes ETFs as they are not domiciled in the UK - usually Dublin).
The major exception to this is Investment Trust funds, as these are traded on the stock market and so attract stamp duty just like any other shares.
I hope that adds a bit more for you.
The major exception to this is Investment Trust funds, as these are traded on the stock market and so attract stamp duty just like any other shares.
I hope that adds a bit more for you.
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hstewie said:
hstewie said: Eric thanks, really appreciate that but I have to say it feels like a tax I can just about get it if you're transferring an Ox in the 1700's and the village register needs updating, but in 2019 it does seem a little "because" given with online dealing this stuff is all done electronically.
All "taxes" are rather arbitrary. And it's moot moot whether they are legally called taxes or something else. It's all a state/local government revenue collection exercise. I can just about get it if you're transferring an Ox in the 1700's and the village register needs updating, but in 2019 it does seem a little "because" given with online dealing this stuff is all done electronically.If the shares being traded are less than £1,000, then the transaction should be exempt. Up until 2003 even a £1 share transfer cost £5 Stamp Duty.
Skyedriver said:
Eric Mc said:
If the shares being traded are less than £1,000, then the transaction should be exempt.
Is this correct, sorry Eric shouldn't question your knowledge do you mean "should" but "aren't" exempt?All AIM is exempt isn't it?
I live in a world where SDRT ( not SDLT) doesn’t exist but I thought I’d post as I have a niggling memory that SDRT applies to paper transactions above £1000 in value but that same exemption doesn’t exist in Crest settled transations?
Certainly the £1000 threshold comes into play if you are filing STFs for franking. It would cost more to collect and process such small payments than you could levy for starters. But I don’t recall the threshold ever being applied to electronic settlements.
This is a tremendously exciting document that might be worth skimming as it contains some of the history behind SDLT and SDRT.
https://assets.publishing.service.gov.uk/governmen...
That also shows that the amount of physical franking that the registrars carry out in a year is a total irrelevence in contrast to the number of electronically settled transactions so I’m not sure anyone should get too excited about a £1000 SDRT threshold that probably pretty much only benefits Mrs Miggin’s probate estate because she refused to relinquish her certificates into Crest because Mr Miggins had always held them certificates etc.
Certainly the £1000 threshold comes into play if you are filing STFs for franking. It would cost more to collect and process such small payments than you could levy for starters. But I don’t recall the threshold ever being applied to electronic settlements.
This is a tremendously exciting document that might be worth skimming as it contains some of the history behind SDLT and SDRT.
https://assets.publishing.service.gov.uk/governmen...
That also shows that the amount of physical franking that the registrars carry out in a year is a total irrelevence in contrast to the number of electronically settled transactions so I’m not sure anyone should get too excited about a £1000 SDRT threshold that probably pretty much only benefits Mrs Miggin’s probate estate because she refused to relinquish her certificates into Crest because Mr Miggins had always held them certificates etc.
I thought CREST accounts were pretty much dead?
As I understand it anything in a SIPP/ISA cannot be in a CREST account for whatever set of reasons.
Usually when I hear CREST mentioned it seems to be mostly elderly investors who prefer something they can physically own.
I did have a quick look once and the brokers that offered it seemed to be insanely expensive.
As I understand it anything in a SIPP/ISA cannot be in a CREST account for whatever set of reasons.
Usually when I hear CREST mentioned it seems to be mostly elderly investors who prefer something they can physically own.
I did have a quick look once and the brokers that offered it seemed to be insanely expensive.
bhstewie said:
hstewie said: I thought CREST accounts were pretty much dead?
As I understand it anything in a SIPP/ISA cannot be in a CREST account for whatever set of reasons.
Usually when I hear CREST mentioned it seems to be mostly elderly investors who prefer something they can physically own.
I did have a quick look once and the brokers that offered it seemed to be insanely expensive.
For Crest, just replace with ‘electronic’ or ‘digital’. It’s over 20 years since I was involved in private client broking, sorry, Wealth Management (;)) and I will tend to use generic terms from earlier days as a result. As I understand it anything in a SIPP/ISA cannot be in a CREST account for whatever set of reasons.
Usually when I hear CREST mentioned it seems to be mostly elderly investors who prefer something they can physically own.
I did have a quick look once and the brokers that offered it seemed to be insanely expensive.
Paper/non Paper, non electronic/electronic is the differentiator as to whether the £1000 threshold applies I believe.
But as far as I am aware (very out of touch on physical settlements), Crest is still the electronic settlement system in use and the high charges that you mention used to be the charges for moving physical certs to digital and wholly justified as it is a right royal pain and takes up stupid amounts of man hours while also carrying fraud risk.
Ah with you, I tend to hear CREST and think of this as it's usually where I see it mentioned.
http://crestaccounts.co.uk/crest-personal-member-a...
Things like £125 to buy £5K of shares (excluding stamp duty) etc.
To be fair go back 20 years and maybe that was reasonable, I don't know, but it's amazing how things have changed to the point where you can now do that for a fiver (or less).
http://crestaccounts.co.uk/crest-personal-member-a...
Things like £125 to buy £5K of shares (excluding stamp duty) etc.
To be fair go back 20 years and maybe that was reasonable, I don't know, but it's amazing how things have changed to the point where you can now do that for a fiver (or less).
bhstewie said:
hstewie said: Ah with you, I tend to hear CREST and think of this as it's usually where I see it mentioned.
http://crestaccounts.co.uk/crest-personal-member-a...
Things like £125 to buy £5K of shares (excluding stamp duty) etc.
To be fair go back 20 years and maybe that was reasonable, I don't know, but it's amazing how things have changed to the point where you can now do that for a fiver (or less).
I reckon it was close to loss making for many firms. 20 or so years ago a transaction would pass from client to broker, from broker to dealer, dealer to market, market to settlements, settlements to checking, checking back to settlements, settlements to nominees via registrars, nominees to accounts, accounts to broker and finally broker to client. And numerous little bits in between that I’ve long forgotten. http://crestaccounts.co.uk/crest-personal-member-a...
Things like £125 to buy £5K of shares (excluding stamp duty) etc.
To be fair go back 20 years and maybe that was reasonable, I don't know, but it's amazing how things have changed to the point where you can now do that for a fiver (or less).
Every single step involved manpower. Even in the early tech days where clients thought it was all amazingly digital it was completely unchanged other than the client could cut out the broker step by using an emailer system designed to look like a trading platform. The docket still printed out onto the dealing desk and most of these clients still wanted physical certs.
In fact, I made my first real money due to the time arbitrage of phone broking being faster than online trading, often by several hours!!!
. The electronic revolution put me on a two day working week, if that, for a couple of years. JulianPH said:
AIM share are indeed excluded, but I wouldn't question Eric if i were you. He seriously knows his stuff.
To be fair, I'm not an "expert" in Stamp Duty (or whatever they chose to call it this week) matters.The best option is to go to the HMRC website and read up on the rules there.
DonkeyApple said:
I reckon it was close to loss making for many firms. 20 or so years ago a transaction would pass from client to broker, from broker to dealer, dealer to market, market to settlements, settlements to checking, checking back to settlements, settlements to nominees via registrars, nominees to accounts, accounts to broker and finally broker to client. And numerous little bits in between that I’ve long forgotten.
Every single step involved manpower. Even in the early tech days where clients thought it was all amazingly digital it was completely unchanged other than the client could cut out the broker step by using an emailer system designed to look like a trading platform. The docket still printed out onto the dealing desk and most of these clients still wanted physical certs.
In fact, I made my first real money due to the time arbitrage of phone broking being faster than online trading, often by several hours!!!. The electronic revolution put me on a two day working week, if that, for a couple of years.
That puts things in perspective.Every single step involved manpower. Even in the early tech days where clients thought it was all amazingly digital it was completely unchanged other than the client could cut out the broker step by using an emailer system designed to look like a trading platform. The docket still printed out onto the dealing desk and most of these clients still wanted physical certs.
In fact, I made my first real money due to the time arbitrage of phone broking being faster than online trading, often by several hours!!!
. The electronic revolution put me on a two day working week, if that, for a couple of years. I can go into work and before 8am all my fund trades are queued and ready to go, and I can take my phone out at pretty much any time that suits and purchase or sell an Investment Trust or share or ETF.
And people moan that it costs £12 to do so, including me sometimes.
Honestly it staggers me how good we have it.
bhstewie said:
hstewie said: That puts things in perspective.
I can go into work and before 8am all my fund trades are queued and ready to go, and I can take my phone out at pretty much any time that suits and purchase or sell an Investment Trust or share or ETF.
And people moan that it costs £12 to do so, including me sometimes.
Honestly it staggers me how good we have it.
Proper STP has brought the cost right down as you just don’t need any of the clerical staff any longer, plus exchanges like the LSE have been forced to compete against the likes of Chi-X and so have dropped things like shape charges which was why physical brokers also always had to have minimum tickets as a client trade often was comprised of multiple fills, or shapes, and each one cost £1. I can go into work and before 8am all my fund trades are queued and ready to go, and I can take my phone out at pretty much any time that suits and purchase or sell an Investment Trust or share or ETF.
And people moan that it costs £12 to do so, including me sometimes.
Honestly it staggers me how good we have it.
Many physical broking desks still run at a loss as they use discounted self execution prices to lure customers in so as to then be able to sell them the profitable financial services such as managed accounts, structured products, tax wrappers, debt etc
Today, destinations will actually actually pay a brokerage for their client flow on physical equity, just as the off exchange destinations have been doing for FX. This is how the ‘free dealing’ businesses like RobinHood have come about. They’ve taken that modest payment flow and expanded on it to make it much bigger. So what they do is tell the destination that on top of the standard rate they want X on top, the destination then adds that X to the end client’s execution price and kick it back. So the client thinks it’s free and lives it but end up paying more comm via manipulated spreads than if they’d gone to the cheapest overt comm charging operator. Such are the joys of the younger consumer and their expectation that free means free and that mystically everything gets paid for by magical fairies.
You are 100% right that we’ve never had it so good but you’ve got to understand how it mechanically works and understand your own activity in order to access that benefit or you risk being in the majority who have never actually had it so bad.
Here we go, threashold on paper transactions only:
https://www.londonstockexchange.com/traders-and-br...
https://www.londonstockexchange.com/traders-and-br...
How does that work in the example of RobinHood? 
To clarify, I used the word "trade" when I'm a buy and hold investor with the odd sale, so I'm not trying to do anything complicated just buy the odd Investment Trust or fund and hang onto it.
I see some of the threads on here about some of the more complex financial instruments and perhaps it's because I don't understand them but I'm slightly incredulous that someone like me is allowed near them.
To clarify, I used the word "trade" when I'm a buy and hold investor with the odd sale, so I'm not trying to do anything complicated just buy the odd Investment Trust or fund and hang onto it.
I see some of the threads on here about some of the more complex financial instruments and perhaps it's because I don't understand them but I'm slightly incredulous that someone like me is allowed near them.
bhstewie said:
hstewie said: How does that work in the example of RobinHood?
To clarify, I used the word "trade" when I'm a buy and hold investor with the odd sale, so I'm not trying to do anything complicated just buy the odd Investment Trust or fund and hang onto it.
I see some of the threads on here about some of the more complex financial instruments and perhaps it's because I don't understand them but I'm slightly incredulous that someone like me is allowed near them.
Let’s say I’m a broker who gets £50m of physical equity flow a day from my clients, I can earn my crust by clearing that flow directly into the recognised exchange, such as the LSE and charging the clients a direct commission for giving them access through my license, or, I could sell that flow to a clearer like Goldman’s who still give the same execution price as the underlying exchange but don’t put that flow into it but use it elsewhere in their business to capture the market spread for themselves as profit, some of that profit is passed back to the broker to buy that flow. Ie the retail desk receives a load of long flow which is used by the institutional desk to match selling flow, both clients get best ex, or even better (not the retail flow typically) and the clearer gets to keep the spread between the bid and offer as profit. To clarify, I used the word "trade" when I'm a buy and hold investor with the odd sale, so I'm not trying to do anything complicated just buy the odd Investment Trust or fund and hang onto it.
I see some of the threads on here about some of the more complex financial instruments and perhaps it's because I don't understand them but I'm slightly incredulous that someone like me is allowed near them.
How ‘free’ broking has come about is through finding a clearer that will in essence break away from best ex and apply a mark up via widening the bid and offer spread (the same mechanism we OTC firms use to charge comm but for a different reason historically). That ‘mark-up’ is the commission but it is now overt as far as the end consumer is concerned. The broker says they want 25bp mark up back on top of the standard flow payment and that 25bp is applied to the dealing spread.
What’s interesting is that the RobinHood model shouldn’t be legal in the UK as there is a twenty year old legal case between CMC and the Govt that ended with CMC no longer being able to advertise themselves as Deal4Free because there was a comm charge being wrapped into the spread the client’s were dealing on but like many things in life the people in the positions who are governing this weren’t there back then and have absolutely no knowledge or memory so ‘free’ dealing looks like it is about to return as more firms seek to emulate the RobinHood model and if things run to the traditional course it will be ten years before the regulator instruct, yet again, that implicit comms must be published in advance just like explicit comms.
So I don't claim to fully understand that, but are you saying that if I use some of the cheap/free brokers that they're no trading directly on the exchanges but using a "bigger boy" who is providing the shares I want to me at the price I agree but there is then something taking place between the "bigger boy" and the markets and my broker where they may get a better deal and share the profits between them?
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