What is Stamp Duty on UK shares?

Stamp Duty Reserve Tax (SDRT) is a transaction tax on the purchase of shares in companies incorporated in the United Kingdom and settled electronically through the CREST system. The standard rate is 0.5% of the consideration paid (i.e., the price you pay, not the profit). It is charged to the buyer, not the seller, and is collected automatically by HMRC at the point of settlement via the broker.

For physical share certificates settled via a paper stock transfer form, the equivalent tax is Stamp Duty at the same 0.5% rate, but it is charged only when the total consideration exceeds £1,000.

SDRT applies to ordinary shares and preference shares in UK-incorporated companies. It does not apply to purchases of shares listed on AIM — AIM shares were made SDRT-exempt in 2014 to encourage investment in smaller companies. Foreign company shares listed on the LSE (including many global depositary receipts) are generally not subject to SDRT unless the company has structured its securities in a way that brings them within scope.

The 0.5% cost is a meaningful drag on short-term trading returns. A trader turning over their entire portfolio monthly would pay 0.5% on every buy, adding up to 6% per year in transaction costs from SDRT alone before bid-offer spreads, broker commissions, or capital gains tax. Long-term investors with lower turnover absorb the cost once and hold.

AIM's SDRT exemption is one reason some UK investors favour the market for buy-and-hold positions, pairing the SDRT saving with the potential Inheritance Tax relief available through Business Property Relief on qualifying AIM shares.