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Stamp duty

Stamp duty on changing shareholders in your limited company

Stamp duty is a tax on buying shares, which applies to most share transactions in the UK. If you’re changing shareholders in your limited company, then it’s essential to understand when and how much stamp duty is payable. In this blog, we’ll explain the basics of stamp duty on share transfers, including how much it costs, when you need to pay it, and what exemptions and reliefs are available.

Stamp Duty, what is it and how does it work?

One of the old-fashioned parts of the UK tax and legal regime is that sale and transfer documents must be ‘stamped’. Back in 1694, you took your payment and document to the Stamp Office – and your physical document was ‘stamped’ with a wax seal (by pressing a specific stamp into the wax). The old wax seals were replaced with self-adhesive stamps that were impressed or stamped with a die. Then in 2020, the modern equivalent became an email, a bank transfer, and a receipt or confirmation from HMRC. Much easier, but we’ve obviously lost some of the mystique and tradition!

While most people are aware of stamp duty on buying land and property, it is also applicable when buying shares and share transfers – or, at least, on most share transactions. It is a tax on buying that the purchaser pays rather than the seller. So if you buy or receive a transfer of shares in a limited company, then you will owe Stamp Duty – unless there is an exemption or relief!

How much is stamp duty on share transfers and when do you pay it?

Stamp duty on share transfers is at ½% and is payable within 30 days of a transaction – or the interest is chargeable. Note that if you buy shares electronically through the CREST share dealing system, you pay Stamp Duty Reserve Tax which is also ½%.

What shares are exempt?

Firstly, Stamp Duty on shares is on the transfer of shares. So if you are being issued new shares in a private limited company, there is no Stamp Duty tax!

Secondly, there are several exemptions and reliefs from stamp duty on shares. Some exemptions are beneficial, and, as with all things HMRC, Stamp Duty can get technical. *So please take bespoke advice about your circumstances and don’t rely on this article.*

If an exemption applies, stamp duty need not be paid, and often you don’t need to email a copy of the transfer document to HMRC. 

If you are dealing with a stock transfer form to transfer shares, the exemptions are: 

  • For £1,000 or less. 
  • As a gift.
  • Between spouses or civil partners when marrying or entering into a civil partnership.
  • On divorce or the dissolution of a civil partnership.
  • When they are transferred between two trustees of the same trust.
  • On death under a will or the intestacy rules.
  • By a liquidator as part of the winding-up of a company.
  • To a beneficiary when a trust is being wound up.
  • As certain types of loan capital.
  • Which are traded on a recognised growth market and not on any listed market.

What stamp duty reliefs are available for share transfers?

The difference between exemptions and reliefs is that reliefs require claiming, i.e. emailing HMRC with the transfer document and making the claim for relief.

The reliefs from stamp duty are:

  • Transfers between companies in the same group can qualify for Intra-group relief.
  • When one company acquires all the shares in another company, but the same people own both companies (you may be able to claim acquisition relief).
  • You can claim Reconstruction relief when all or part of a company’s trade is transferred.
  • There’s no Stamp Duty to pay when stock is transferred to a recognised intermediary. 
  • There’s no Stamp Duty to pay if the transfer concerns repurchasing and stock lending.
  • There’s no Stamp Duty to pay for transfers to charities.

Note: each relief is subject to conditions being met, and Stamp Duty can get quite technical. You should always take proper advice before claiming relief.

Need more advice?

Stamp duty is a complex tax that applies to many different types of transactions, including share transfers. If you’re changing shareholders in your limited company, it’s essential to understand when and how much stamp duty is payable, as well as what exemptions and reliefs are available. By seeking professional advice and taking the time to understand the rules, you can ensure that you’re complying with the law and avoiding unnecessary costs.

If you run a limited company and would like help in talking about sharing changes and what’s involved, get in touch for a free chat! 

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