The Treasury should slash the taxes applied to UK share transactions to help boost investment and curb the exodus abroad of stock market listings, trade groups and brokers have urged.
Investors buying shares listed on the main London Stock Exchange pay a transaction tax of 0.5 per cent. For shares traded electronically, this is known as stamp duty reserve tax and is deducted automatically through the Crest settlement system.
“Stamp duty is probably one of the biggest competitive obstacles to investment in UK stock market shares,” said Malcolm Hurlston, director of the UK Share Association, which represents private investors.
“If it were removed, it would increase the UK stock market’s international competitiveness, especially with the US,” he said.
Most countries with rival stock markets apply significantly lower transaction taxes, or none at all, as in the US and Germany. Listed French stocks with a market capitalisation of more than €500mn have a 0.3 per cent tax and Spanish stocks have a 0.2 per cent levy for companies valued at over €1bn.
“The issue is that shares on the UK stock market will be a little less liquid than those on competitor stock markets,” said John Cullinane, director of public policy at the Chartered Institute of Taxation.
Lorence Nye, deputy director of financial services at the business lobby group CBI, said: “We need a tax approach that doesn’t incentivise investors to look elsewhere.”
The UK capital’s appeal for business and investment has come under scrutiny this month after companies such as buildings material group CRH and UK microchip designer Arm favoured a New York listing over London.
As technology has brought down the overall cost of trading in recent years, stamp duty has become a larger proportion of the overall cost.
Interactive Investor, a DIY investment platform which charges customers a maximum of £5.99 per trade with at least one free trade per month, said the average amount of stamp duty paid per customer on its platform last year was £261.
“While 0.5 per cent may not seem much initially, it adds up for a private investor over time, and that presents a barrier to investors who can choose to buy, among other things, a bond or a unit trust instead of equities,” said David Ostojitsch, director of government relations and policy at PIMFA, a private investor industry group.
Richard Wilson, Interactive Investor chief executive, noted that the current level of stamp duty could push private investors into buying more risky derivative products such as contracts for difference where stamp duty is not applied, often by marketed overseas-owned companies.
“In combination with active marketing campaigns, those customers could find themselves caught in a rather opaque relationship, inadvertently investing into complex derivative products,” he said.
However, stamp duty on stocks has proved a healthy money-maker for the government and experts said ministers were unlikely to withdraw it unless presented with clear evidence it was damaging liquidity.
According to the government’s latest statistics, it raised £4.4bn in stamp taxes on shares and securities receipts in the 2021-22 tax year, a 19 per cent rise on the previous year.
The Treasury said that stamp taxes on shares are carefully designed to raise revenue without hindering the ability of businesses to access capital to invest and grow.
It added that the UK is implementing “ambitious reforms” to the rules governing its capital markets.