On the transfer of UK shares from one person to another, stamp duty or stamp duty reserve tax (SDRT) may be payable to HMRC. It is important to follow the proper process to ensure that the correct amount of stamp duty or Stamp duty reserve tax (SDRT) is paid within the required timescale to avoid the potential for a penalty and/or interest being charged. In this article, we will explain how to transfer stock from one person to another, whether you need to pay stamp duty or stamp duty reserve tax (SDRT) on the purchase of shares, how to pay stamp duty and SRDT on share transfers in the UK, and the penalties for late payment.
The following process focuses on the voluntary transfer of the legal and beneficial interest in shares from one person to another. If shares are to be transferred on the death or bankruptcy of the shareholder, legal title is formally passed by operation of law by “transmission”. The following process is not the same as that used by a company acquiring its own shares.
Shares must be transferred from one party to another in full accordance with the articles of association of the company that issued the shares. In most cases, this will mean that the legal and beneficial title to shares can be freely transferred at any time and to anyone entitled to hold shares. Before proceeding with a transfer of shares, it is highly recommended to check there are no specific limitations or qualifications relating to the transfer of shares in the private or public company.
There are main steps involved in the transfer of shares in the UK:
- Agreement – An agreement is reached between the share seller and the share purchaser
- Instrument of transfer – The seller of the shares completes and delivers a share transfer form to the purchaser
- Approval for registration – The share purchaser seeks approval from the issuing company to be added to the register of members
- New share certificate issued – Following registration, the company issues a new share certificate to the buyer in respect of the transferred shares
- Send the stock transfer form to HMRC to be stamped – This must be done within 30 days of the execution of the share transfer. The stock transfer form will then be processed by HMRC and returned to the sender within 10 to 15 days of receipt. The form may be rejected or delayed if it is not dated or signed, the amount payable is not rounded correctly, the form is not complete, or the contents cannot be read. This stamping process is important as if not completed correctly, you will not be able to add your details to the company’s register of members, PSC register, the public register at Companies House, or prove ownership of the shares.
- Payment of stamp duty to HMRC – If payable, stamp duty must be paid to HMRC within 30 days from the date of execution of the transfer.
In accordance with the Stock Transfer Act 1963, a stock transfer form must include details of the:
- Particulars of the consideration for the transfer (i.e. the money to be paid)
- Name of the transferor
- Name and address of the transferee and the
- Description, number or amount of the transferred shares.
You may also need to complete “Certificate 1” or “Certificate 2” on the back of the share transfer form, depending on the type and details of the transfer.
Stamp Duty is normally paid on all company shares bought using a stock transfer form where the value of shares sold is more than £1,000. For example, if you pay £999 for shares by way of a stock transfer form, you will pay no stamp duty.
Stamp duty is payable on the purchase of shares in a limited company, share options, interest in shares, shares in a foreign company with a share register held in the UK, and rights on shares already held.
In some circumstances, you will not need to pay stamp duty, including if:
- there is no chargeable consideration for the shares (e.g. if they are gifted)
- buying new shares issued by a company
- buying foreign shares
- buying shares in an exchange-traded fund (ETF), or
- exemption or relief applies to the share transfer
Stamp duty reserve tax (SDRT) is payable if shares are transferred electronically (a paperless transaction).
Payment of stamp duty if using a stock transfer form
How much stamp duty do I pay if using a stock transfer form?
If you have used a stock transfer form, the rate at which stamp duty is charged by HMRC on the transfer of shares is 0.5% of the sale value, also referred to as the “chargeable consideration”; this is not the market value of the shares. It is important to note that the exact amount of stamp duty you pay will be rounded up to the nearest £5 for each transfer document stamped.
For example, if you pay £1,050 for your transferred shares, 0.5% equates to £5.25, which would be rounded up to £5.50.
The payment of any stamp duty owed to HMRC must be paid within 30 days of the date that the stock transfer form was signed and dated.
Stamp duty on shares transferred using a share transfer form can be paid in a number of ways:
- Faster payment – online or via telephone banking – normally reaches HMRC on the same or the next day (including weekends and bank holidays)
- CHAPS – normally processed on the same day or the next day
- BACS – payments can take up to three working days
- Cheque – it is recommended to allow 3 days for cheques to reach HMRC
It is important to provide the correct reference number with your payment to ensure it is processed properly by HMRC. HMRC advise that you should use your name and the amount paid with no spaces, e.g. TJones/1000.00.
Once you have paid the stamp duty owing on the shares you have purchased, you must email your Stamp Duty notification to HMRC to let them know you have done so. This should be sent to: email@example.com with the following information:
- The payment reference, amount, and date, and:
- An electronic copy of the:
- signed and dated stock transfer form, or
- another instrument of transfer, or
- form SH03 for return of purchase of own shares
The HMRC also state that they permit e-signatures.
What happens if I do not pay on time?
Those who are liable to pay stamp duty following the purchase of transferred shares must have their transfer document stamped by HMRC within 30 days of the date it was signed and dated (“executed”). If you do not submit your transfer form and payment on time, you may be issued with a penalty and required to pay interest. If your documents were executed abroad, HMRC states, “you have 30 days after first receiving them in the UK to get them stamped. You must confirm in writing the date the documents were received in the UK”.
The current penalties for late submission of stamp duty documents and payment are as follows:
- 10% of the duty owing (capped at £300) for documents late by up to 12 months
- 20% of the duty owing for documents late by 12 to 24 months
- 30% of the duty owing for documents late by more than 24 months
Stamp duty reserve tax (SDRT) if stock is transferred electronically
How much stamp duty reserve tax (SDRT) do I pay on electronic transfers?
If you intend to purchase shares electronically, you will need to pay SDRT even if the value of the transaction is less than £1,000. Like stamp duty, SDRT is calculated at 0.5% of the consideration value, but the way it is rounded is slightly different, being rounded up or down to the nearest penny.
SDRT can be paid through the “CREST” electronic clearing system or outside of “CREST”. If you use CREST, the amount owing will be automatically calculated and paid to HMRC. If you pay outside of CREST, you will need to submit a written notice and payment to HMRC.
It is important not to overlook the payment of stamp duty or SDRT following the transfer of shares. The onus is on you as the share purchaser to submit the necessary documents and payment (whether in paper or electronic form) within the deadline set by the HMRC. If you are in any way unsure whether you need to pay, how much to pay, or how to pay, speak to a specialist in company accounting who will be able to advise you further.
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