Quick answer – yes. Long answer – there are different situations when company shares attract taxes or not. To keep yourself in the HMRC good books, you need to be up to date with the tax commitments that may arise when you buy, sell, or earn income from any shareholdings.
Here is an overview of the different scenarios that attract tax:
Buying shares and the application of stamp duty
When buying a house, you will pay Stamp Duty. Stamp Duty will also be paid, at a standard rate of 0.5% of the transaction value, when you purchase shares. It comes into effect when:
You purchase electronically through the ‘CREST’ system. The Stamp Duty Reserve Tax is deducted automatically in the course of the transaction.
You purchase shares for a total value of more than £1,000 using a paper stock transfer form. The Stamp Duty is payable to HMRC.
Stamp duty is calculated on the prices paid, not on actual market value. The following share transaction types will also attract Stamp Duty:
Purchasing existing shares in a UK incorporated company
Purchasing options to buy shares
Purchasing an interest in shares
Purchasing from a share register in the UK of a foreign company
Purchasing rights arising from shares
Stamp duty free options
The following transactions do not require you to pay tax on shares:
When shares are given for free*.
When you make a subscription against a new issue of shares in a company (e.g. venture capital).
When you invest via shares in an ‘open-ended investment company’ (e.g. a unit trust fund).
When you purchase foreign shares outside the UK (note: other taxes might apply).
* In the case of inherited shares, inheritance tax will be due. In addition, gifted shares within 7 years of the death of the gifter will also attract inheritance tax.
Special share arrangements and the application of stamp duty
In some transactions, shares are transferred into a depositary receipt scheme whereby the transfer is not a constitutive part of an issue of share capital. This attracts a higher level of Stamp Duty Reserve Tax at 1.5%.
An example of such a transfer is when a bank (or another third party) gives you a trading vehicle to hold shares in the equity of companies in foreign countries as opposed to the investor trading directly on an international market. Thereafter, the trading is free of Stamp Duty.
This is a tricky area and verification of the tax implications for your unique transactions should always be obtained from an accountant experienced in this area.
Selling shares and capital gains tax
Any gains, profits or earnings that are made in respect of shares, from selling or disposing of, will attract Capital Gains Tax.
The gains tax is calculated on the difference (the gain) between the shares’ purchasing and selling price.
The market value can be applied as the sales price in the following instances:
If shares are given away as a gift. This does not apply if the recipient is the spouse of the shareholder or a charity.
If the sale is deemed undervalue.
If the shares are inherited, and the Inheritance Tax value is unknown.
If ownership was gained prior to April 1982.
If the shares were given through certain Employee Share Schemes.
When shares are gifted or sold by a person who previously claimed Gift Hold-Over Relief, the amount that person paid for them is used in the gain calculation.
Deducting costs and the application of reliefs to Capital Gains Tax
Certain share transaction costs can be deducted from a gain, such as stockbroker fees and Stamp Duty paid at the time of purchase.
The applicable tax relief options are:
BADR or Business Asset Disposal Relief –
If the shares are sold in a trading company within which the shareholder works, and that shareholder has at least 5% of the shares and voting rights, then a ten per cent Capital Gains Tax is applicable instead of the normal rates.
GHOR or Gift Hold-Over Relief –
If shares are given away in a personal company, or if shares are given away in an unlisted company, then no Capital Gains Tax is payable. However, when the recipient sells the shares, they will pay tax.
EIS or Enterprise Investment Scheme –
Capital Gains Tax can be delayed or reduced if the shareholder uses the gain to purchase unlisted shares in EIS-approved companies.
SEIS or Seed Enterprise Investment Scheme –
Gains of up to £100,000 are exempt from Capital Gains Tax if those gains are used to purchase new shares in small, early-stage, SEIS-approved companies.
Rollover relief –
Capital Gains Tax can be delayed if the unlisted shares are bought by trustees of a Share Incentive Plan, and the seller (shareholder) uses the sale funds to acquire assets.
The Capital Gains Tax Allowance (tax-free threshold) stood at £12,300 in the tax year 2021-22. Any gains above the threshold will be subject to taxation (2020/2021) as follows:
Ten per cent ‘basic rate’ for gains from £12,571 to £50,270
Twenty per cent ‘higher rate’ for gains above £50,270
The exceptions to Capital Gains Tax
Shares gifted to a spouse, civil partner or a charity do not attract Capital Gains Tax nor when shares are in:
Personal Equity Plans
Individual Savings Accounts
Employer Share Incentive Plans (SIPs)
UK government gilts (including Premium Bonds)
Approved Corporate Bonds
Some employee shareholder shares might be included subject to when the shares were awarded.
Income from shares and Dividend Tax
Shareholders all have a Personal Allowance tax-free threshold for earnings on shares. Shares held in an ISA also do not attract tax.
The 2020/2021 Personal Allowance was £12,570 plus an additional £2,000 tax-free threshold on dividend payments (Dividend Allowance) to the shareholders. The tax rate on amounts over £2,000 is subject to the individual’s tax bracket. The 2020/2021 dividend tax rates were set at:
Basic: 7.5% – £12,571 to £50,270
Higher: 32.5% – £50,271 to £150,000
Additional: 38.1% £150,000+
Note: these rates are lower than related Income Tax levels.
Are UK taxes applied to US shares?
For legal residents of the UK, there is always an obligation for you to declare earnings on and pay UK incomes taxes on dividends from any foreign shares in your portfolio. In addition to this, you are required to pay UK capital gains tax on gains achieved from the sale of the shares. So regardless of whether your investments are foreign or local, when you are paid out a dividend, it will either have some form of tax deducted, or you must declare it yourself and pay that tax.