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electronic transactions, these costs are no longer incurred and therefore the original justification for the charge is no longer valid.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

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Group description:	The Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on all types of income generating financial instruments, from stocks through Trusts and Funds and ETFs to retail bonds. Meetings involve presentations from members, who are also expected to lead discussions from time to time, as well as discussions on what has been bought and sold since the last meeting.
Meeting Type/Venue:	Meetings are in-person in a venue in Central London.
Meeting Frequency/Timing:	Meetings are usually held on the last Thursday of every other month, starting with an informal lunch around 1pm followed by discussions until around 5pm.

0.5% Stamp Tax on UK shares – consultation response

Abolish Stamp Duty Tax or reduce it to 0.05%

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Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Open to all investors / people with an interest in investing. Typical meeting will involve members talking about recent purchases, successes, failures and possible future purchases. Also with occasional visiting speakers or members making presentations on a topic of interest.
Meeting Type/Venue:	We aim to meet on the last Tuesday of each month in a private room at a pub in Playhatch. Start time 7pm with members encouraged to meet up around 6pm for a bite to eat / drink before hand, if their diaries allow.
Meeting Frequency/Timing:	7pm on the last Tuesday of the month. Meetings likely to last about two hours but with informal ‘overspill’ before / after.

Group description:	Our group members have wide ranging investment experience and work backgrounds. Discussion topics include reviewing our recent stock or collective investment buying and selling activity, plus what we are considering buying or selling and the reasons for our decisions. We also have a wider discussion on where we think opportunities might arise in the next few months and what we think needs to be avoided. Members occasionally lead discussions on specific topics such as recent events attended, articles or books of interest and sources of investment ideas and information.
Meeting Type/Venue:	During the pandemic our meetings were held on Zoom, but we have now resumed meeting in person at a location a few miles to the west of Colchester. Most meetings will now be in person, but it is possible that occasional meetings will be held on Zoom in special circumstances.
Meeting Frequency/Timing:	We meet midweek every two months. Zoom meetings run for about two hours from 10.30am and in person meetings from 11am until about 3pm, including a break for lunch.

0.5% Stamp Tax on UK shares – consultation response

Abolish Stamp Duty Tax or reduce it to 0.05%

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