UK Equity Traders Avoid Stocks In Favour Of Tax-Free Alternatives

by Robert Lee, Tax-News.com, London

07 May 2004

The UK government has foregone £2.5 billion in revenues from stamp duty on shares as fund managers and investors turn towards derivatives to escape the tax, a Daily Telegraph report highlighted yesterday.

Citing Inland Revenue figures, the report showed that revenues from the tax on share trading fell from £4.5 billion in the 2000/2001 tax year to a likely £2.6 billion in 2003/2004.

Given the recovery in the stock market over the previous year, it is estimated that the Treasury should have received around £5.1 billion from the levy in the tax year just passed.

According to analysts, much of the decline in revenue can be attributed to the growing popularity of equity-based derivatives such as contracts for differences and universal stock futures traded on London’s futures exchange, Liffe, which do not attract the 0.5% tax.

The UK is acknowledged to have the highest rate of share trading tax among its competitors and the London Stock Exchange has suggested that the cost of stamp duty can make up as much as two-thirds of the cost of a typical transaction.

This is a fact that is relecting badly on the UK markets, the LSE’s Chief Executive Clara Furse revealed to the Telegraph, going on to suggest that many investors are deserting the UK equity market to trade shares on foreign exchanges where taxes are considerably lower or non-existent.

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