Stamp duty is payable when you buy shares. As the costs of stamp duty can reduce the effectiveness of day trading, finding ways to reduce this tax can make the difference between profit and loss. Read this article to learn how to buy shares without paying stamp duty.
Stamp duty, which is sometimes called Stamp Duty Reserve Tax, of 0.5 percent is payable whenever you buy shares. Stamp duty is also payable if any shares are transferred to you, either electronically or by stock transfer forms. This is the law and it’s just part of the costs of buying shares along with broker commissions.
So do we always have to pay stamp duty whenever we buy shares?
Actually we don’t always have to pay stamp duty for share purchases, because this tax only applies for shares in a company that’s incorporated in the UK, or in a foreign company that maintains a share register in the UK.
So if you buy shares in a company that is not incorporated in the UK and doesn’t maintain a UK based share register, then you don’t need to pay stamp duty.
Buying shares in foreign companies is easy
You would think that buying shares in foreign companies is difficult, but actually modern Internet based stockbrokers can now facilitate trades in stocks in major countries like the USA and in Europe.
The better stockbrokers allow you to hold accounts in Sterling, US Dollars and Euros and allow money to be transferred easily between accounts. They also provide you with real time stock quotes for companies listed on the New York Stock Exchange (NYSE) and major European markets.
Buying and selling stocks in America and Europe is as easy as buying stocks in the UK. You can even day trade these foreign stocks in the same way, if you want to. An advantage of trading foreign stocks is that you are not subject to UK stamp duty, although capital gains tax is still due on any profits.
Words of caution
It’s important to remember a few important points about trading in foreign stocks:
- Your trades are subject to currency fluctuations as well as trading conditions. This can impact heavily on buying and selling decisions.
- Considerable research is required to find suitable shares. Companies in foreign countries are subject to market forces that you may not understand or have little knowledge of.
- Time zone differences have to be taken into account when trading in foreign shares. For example, the NYSE currently operates from 2.30pm to 9pm UK time.
- Shares in all companies, wherever they are, can go up as well as down. You must make your own investment decisions or seek professional advice.
- Information about stamp duty on share purchases
- The New York Stock Exchange
- TD Waterhouse – an Internet Stockbroker that can trade Internationally