0.5% Stamp Tax on UK shares – consultation response

Abolish Stamp Duty Tax or reduce it to 0.05%

In a short, 4-page response, to the HMRC Consultation, we re-emphasised the points we made in our 2020 consultation response. Our key points were:

This consultation is fundamentally flawed. It does not discuss the rate of taxation on UK shares, which is currently 0.5% and is hugely uncompetitive with the US, which is the largest securities market in the world.

Our analysis is that:

The original rationale for stamp duty (cost of wax seal etc) is not just of historical interest. In this age of electronic transactions, these costs are no longer incurred and therefore the original justification for the charge is no longer valid.
Stamp Duty tax is not fair. Many of those that invest do not pay it.

Stamp duty is not paid on overseas shares. This adds to the cost of investing in shares in the UK quoted market, for individual investors.
Stamp duty tax does not apply to AIM quoted shares.

We want STS (Stamp Tax on Shares) to be set at a lower rate (say 0.05%) and applied to all trades including HFT (High Frequency Trading), CFD (Contracts for Difference) and spread betting.

STS in relation to shares should not be considered in isolation. STS is a transaction tax levied on the value of shares acquired. Income tax is then paid on dividends (but not when shares are held in an ISA or SIPP (Self Invested Pension Plan). Capital gains tax is then paid on the increase in value of the shares when they are sold (but not when shares are held in an ISA or SIPP).

STS is not applied to purchases of OEICs (unit trusts) but is to purchases of shares in Investment Trusts: this anomaly should be equalised, preferable by the elimination of STS, or setting it to a much lower rate (say 0.05%).

The UK stock markets exists to enable investment in UK companies. A transaction tax of 0.5% on the purchase of UK shares has exactly the opposite effect.

The UK Government says it is keen to promote retail investment in the UK. The Treasury in particular is doing a number of things to make the UK a more attractive place to list. Yet despite this, many companies are choosing to list overseas. This consultation is contrary to the direction of travel of the UK Government.

Many large investors, institutions and high-frequency traders are able to avoid stamp duty through the use of options and CFDs. This penalises individual investors relative to large investors and institutions. A key design principle for a future stamp duty regime should be fairness between different types of market user.

We are not, however, arguing for the complete abolition of stamp duty tax on quoted shares. Stamp duty discourages short term trading. We support the concept that there should be an incentive for patient capital, i.e. long term investing.

Stamp Duty provides friction. However, HFTs and others can avoid STS on shares. If the new STS has a design principle to create friction (and this is possibly a big if), then it is logical to extend this principle to HFTs and others. (France is an interesting example in this respect and its 0.3% tax is a financial disincentive to locate in that country.) Hence, we recommend STS should be set at a lower rate (say 0.05%) and applied to all trades including HFT, CFD and spread betting.

The full response can be read here.

This is an official ShareSoc News Item.

Post Date: June 28, 2023

Alan Selwood says:

1st July 2023 at 5:43 pm

That sounds a very sensible approach to me, apart from getting rid of all stamp duty tax altogether in order to simplify the whole spaghetti mess that is current UK tax law. It is certainly a disincentive to invest in main market UK shares and especially French shares if the tax take is too high compared with alternatives.

Philip says:

1st July 2023 at 5:57 pm

Totally agree with Alan’s sentiment. It would be an obvious solution and could simplify the whole tax regime

Stephen Burke says:

5th July 2023 at 11:12 am

As far as I remember stamp duty was due to be abolished in the mid 1990s when the Taurus electronic registry was introduced – but Taurus collapsed in a heap and stamp duty abolition was quietly forgotten … sadly I suspect that no government is likely to give up a tax in the current climate.

Mark Bentley says:

28th August 2023 at 12:01 pm

It is notable that China has today reduced its stamp duty to 0.05%: https://www.scmp.com/business/china-business/article/3232500/stocks-hong-kong-surge-22-most-5-weeks-after-china-cuts-stamp-duty-margin-requirements-lift

Cliff Weight says:

19th September 2023 at 12:54 pm

A member has emailed me his suggestion, which is as follows:

Hello,
I am writing in response to the piece on Stamp Duty in the newsletter. (I did not find a general link to make comments on the newsletter, hence this contact).

I fully support your argument for extending the tax to other types of trades e.g. Options.

I have never understood will spread betting and CFD are not subject to standard gaming taxes – no difference to outcome of a football match in my opinion.

I suggest that a better solution is NOT applying the tax on purchase but on Sale. This makes the purchase more attractive.

I would further suggest that by changing the tax payment to the sale, the long term holding of shares can be recognised. Starting at 0.5% for a sale within a month, reducing by 0.05 for each month shares held. If held for a year, there is no tax.

This approach would discourage the High Frequency trading which provides no benefit to “Investors” or the company whose shares are being traded.

I hope you will see the benefits of this constructive proposal.

Regards,

David

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0.5% Stamp Tax on UK shares – consultation response

Abolish Stamp Duty Tax or reduce it to 0.05%

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