What is share dealing?

It is a way to buy and sell shares in publicly listed companies, letting you build your own investment portfolio.

Buying shares

There are two common UK stock exchanges you can buy and sell shares on:

  • London Stock Exchange (LSE): Lists over 3,000 companies, ranging from multinationals to smaller UK businesses.

  • Alternative Investment Market (AIM): Lists over 3,600 companies, and offers shares in smaller, growing companies that are hoping to raise capital.

Companies listed on AIM go through a more flexible regulatory process, meaning there is a higher chance of riskier shares being available on AIM compared to the LSE.

Some share dealing brokers let you buy and sell shares in companies listed in foreign stock exchanges, such as: Nasdaq, NYSE, NYSEMKT and Deutsche Boerse (Frankfurt).

Using a broker

When you open a share dealing account with a broker you get access to their trading platform, but you can also choose how involved they are:

  • Execution only: You buy and sell shares without any guidance or advice, and take full responsibility over the performance of your portfolio.

  • Advisory: You get guidance on which companies shares to buy or sell, but still make the final decision on whether to do so.

  • Discretionary: This allows the broker to make trades without your authorisation and usually comes with a charge for managing your portfolio.

Share dealing charges

Admin and maintenance fees

Most brokers charge to keep your account open, with some charging a fee:

  • Every month (monthly)

  • Every three months (quarterly)

  • Every year (annually)

The charge could either be a percentage of the total value of your portfolio or a flat fee.

Commission charges

Most brokers charge a flat fee, such as 15 per trade, but some charge this as a percentage of the trade value with a lower limit, such as 0.5% with a minimum commission of 25.

Some brokers charge less commission if you make more than a set number of trades each month, for example, more than 15 could cut the cost per trade from 10 to 8.

There are three types of commission you could pay depending on how you trade:

  • Frequent trader rate: Brokers can offer lower trade charges if you trade frequently.

  • Telephone trading: This is usually a percentage charge of the amount you trade, and is more expensive than making trades online.

  • Regular investing: Some brokers offer a lower charge by grouping your investment with other traders to qualify for a cheaper rate.

Transfer fees

You will not get charged by a new broker is you transfer existing stocks across from an old broker, but the old broker could charge you a fixed fee per holding.

Inactivity fee

Most brokers charge if you do not make trades within a set period, such as a year. The charge depends on the broker and could be either:

  • A flat fee, such as 25

  • A percentage of your account assets, such as 0.5%

Share dealing tax

There are three types of tax you could pay:

  • Income Tax: This will depend on the tax bracket you fall under, so could be 20%, 40% or 45%. Find out which tax bracket you are in.

  • Stamp duty: This is 0.5% of the purchase price when you buy UK shares. You declare and pay this through an online system called CREST.

  • Capital Gains Tax (CGT): You pay this if you make a profit over 11,000 from selling shares.

Will you own the shares?

Yes, but the type of ownership depends on the way you bought your shares:

  • Beneficial ownership: When you buy shares through a third party, for example, through a broker. You get any dividends and profit if you sell the shares.

  • Direct ownership: When you buy shares registered in your name and get all the rights of a share holder, for example, the right to vote in a company AGM.

When you have direct ownership, you have share certificates with your name on. This is not the case with beneficial ownership.

For this reason, selling shares with beneficial ownership is quicker as you will not need to transfer the certificates into the name of a third party.

Share dividends

When you own shares in a company you could get dividend payments up to four times a year, but only if the company has:

  • Made an after-tax profit

  • Agreed to pay dividends (decided through an AGM meeting)

If you get dividends from your shares, you usually get the choice of reinvesting them back into more shares or to withdraw it as cash.