Share Trading Dip Hits UK Tax Revenues

by Robert Lee, Tax-News.com, London

17 August 2010

A dramatic decline in share trading volumes on the London Stock Exchange means that the UK government is collecting far less in share trading tax at a time when it needs all the additional revenue it can get.

According to research by Equiniti, the UK's largest share registrar, stamp duty reserve tax (SDRT), the 0.5% levy on shares changing hands in the UK, plummeted to just GBP2.9bn (USD4.5bn) in 2009/10, two-thirds of the GBP4.2bn raised from the levy in 2007/8 when trading volumes reached an historic high.

Equiniti suggests that the Office of Budget Responsibility's target of GBP3.1bn in SDRT this year is "achievable" as higher share prices compensate for lower trading volumes, but current trends will still be below the levels of 2004/5 in real terms. Indeed, with volumes likely to be subdued for the next couple of years, "the tax take is unlikely to return to its highs for some time to come," the firm says.

"High volumes of transactions, rather than high share prices, are more important for bringing in tax and commissions respectively. Compared to earlier years, the Treasury and some City institutions are feeling the pinch," observed Wayne Story, Chief Executive Officer at Equiniti.

2010 is on track to see the lowest trading volumes in UK equities since 2002, according to the first Equity Trading Tracker from Equiniti.

Shares worth 1.46 times the value of the UK market are set to trade this year, the lowest level since 2002. In 2007 shares worth more than twice the total value of the UK market changed hands. On average shares worth 1.56 times the value of the market were traded each year over the last ten years, meaning 2010 is still below both recent norms and even below 2009, despite the economic recovery and upturn in the stock market.

This year GBP2.5 trillion of UK equities will be traded on current trends. This is almost two fifths below the peak in 2007 when a staggering GBP4.0 trillion worth of equities changed hands. In cash terms more shares changed hands in the five years to the end of 2007 than in the previous fifteen years since 1988.

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