Stamp duty is the oldest tax, dating back as far as 1694. However, the tax has drastically changed and is now limited to paper transactions in shares.
Stamp Duty is payable on non-electronic share deals on transactions valued over £1000.
However, Stamp Duty Reserve Tax (SDRT) is charged on share purchases that are made electronically such as an online share dealing account.
Classically, the payment of stamp duty was shown by impressing a stamp on a paper document. This may sound simple, but in the commercial age is considered to be time consuming and causes unnecessary delays.
Regulation reviews in March 2019 finally removed the requirement of an impressed stamp. Instead, the payment of duty is shown by the means of a die.
The definition of a ‘die’ has been extended to include any machine used under the direction of HMRC for denoting duty.
Stamp duty is a tax on ‘instruments’ specified in the legislation, including:
- stock transfers;
- other documents transferring a beneficial interest in stock or marketable securities;
- Companies House returns for purchase of own shares;
- creation of bearer instruments;
- sale of a partnership interest;
- certain court orders that act as a document of transfer.
Standard rate of stamp duty
Stamp duty is referred to as an ‘ad valorem tax’ meaning that it’s payable in proportion to the value of the goods or transaction.
Transfers on sale of stocks or marketable securities is taxed by stamp duty at a standard rate of 0.5% and is calculated by reference to the amount or value of the consideration paid.
If the value of the consideration for the sale is £1,000 or under, there is no 0.5% stamp duty charge will apply if the instrument contains a ‘certificate of value’.
A certificate of value is a statement that the transaction effected by the instrument does not form part of a larger transaction or series of transactions in respect of which the amount or value, or aggregate amount or value, of the consideration exceeds that amount.
An instrument representing a share sale for consideration of £1,000 or less which does not contain a certificate of value is subject to stamp duty at 0.5%.
What are stock transfer forms?
Stamp duty is unique, as the legislation doesn’t specify who’s liable to pay the tax. It’s usually the person who needs the instrument to prove title, such as to register ownership of shares. It can also be the person’s agent, such as a solicitor or stockbroker, who represents the person and pays the duty.
Stock transfer forms can be obtained from broker, lawyers and accountants who deal with shares, and it can be downloaded from the internet. During the coronavirus pandemic, these forms are set in electronic format but should usually be sent by post to HMRC.
How do I pay?
Stamp duty must be sent no later than 30 days after stock transfer documents are dated and signed. If it’s sent any later, than there will be penalties and interest imposed.
If you overpay, then a refund may be claimed within two years of the date stamped in the document, if it’s an undated document then a refund can be claimed within two years of first execution.
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