Income tax

You will have income tax deducted from any profits or interest you make on your investments*, just like with normal savings accounts.

This means:

  • If you are a basic rate taxpayer you will pay 20% income tax

  • If you are a higher rate taxpayer you will pay 40% income tax

  • If you are an additional rate taxpayer you will pay 45% income tax

* Excluding stocks and shares ISA's.

Capital Gains Tax

If the profit you make when you sell your shares or investment exceeds 11,100, you will pay Capital Gains Tax (CGT).

The amount of tax you pay depends on:

  • If you are a basic rate taxpayer you will pay 10% CGT

  • If you are a higher rate taxpayer you will pay 20% CGT

You do not need to pay CGT if:

  • The profit you make comes from a stocks and shares ISA

  • You give or sell shares to your spouse or civil partner*

* Unless you have separated and have not lived together during the same tax year.

Dividend tax

If you get an income or dividend from shares you have invested in you will have to pay dividend tax.

You have a tax free dividend allowance of 5,000.

Any dividends that exceed your allowance will have dividend tax deducted based on the tax band you fall into:

Tax band Dividend tax
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

Stamp duty on shares

It is a tax you pay when you buy shares. Stamp duty is calculated differently depending on how you buy your shares:

  • Using a stock transfer form: also known as paper share transfers, you will pay Stamp Duty

  • Online: also known as electronic paperless share transactions, you pay Stamp Duty Reserve Tax (SDRT)

How does Stamp Duty on shares work?

You are charged 0.5% tax when you buy more than 1,000 worth of stocks and shares using a paper stock transfer form. The amount you pay is rounded up to the nearest 5.

You can pay for shares using:

  • Cash

  • Other stocks and shares

  • Debt

The amount you are charged is based on how much and the way you pay for your share:

For example, if you bought 5,000 for shares you would pay 0.5% of this figure, meaning the stamp duty would cost you 25.

Once you have bought your shares, you need to send your stock transfer form to HMRC for stamping along with your tax payment.

How does Stamp Duty Reserve Tax work?

You pay a Stamp Duty Reserve Tax (SDRT), which is charged at 0.5% and rounded up or down to the nearest penny.

The amount you are charged is based on what you pay, rather than the actual value of the shares.

For example, if you pay 2,000 for shares that are worth 5,000, you will only pay SDRT on the 2,000.

SDRT only applies when you buy:

  • Shares in a UK company

  • Shares in a foreign company with a share register in the UK

  • An option to buy shares

  • Rights arising from shares already owned

  • An interest in shares

  • Units in unit trusts

  • Shares in open ended investment companies (OEICs)

You do not need to pay SDRT if you are given shares as a gift.