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Abdul Aziz

Things you might not know about the stock market: it’s easy to (legally) avoid paying tax on shares





There’s a well known saying that says there are two things guaranteed in life: death and taxes. We’d certainly agree on the first point. As for the second, sometimes there are ways to legally avoid paying unnecessary taxes. In another article we covered the issue of stamp duty on shares. But is there any way to avoid paying certain taxes?


In short, yes. However, do remember that this article does not constitute financial advice and you should seek your own professional advice.




How to avoid paying tax on shares



Buying shares from AIM listed companies carries some tax-saving benefits.


Many people have heard of the FTSE 100. In a nutshell, this is an index of the 100 biggest companies in the United Kingdom. Investors often buy shares in companies that are listed on the FTSE 100 as these companies are perceived to be low risk investments. However, the FTSE 100 isn’t the only index in the UK and investors are not restricted to investing in the 100 biggest companies in the UK.


One index in the United Kingdom is called the AIM, which stands for Alternative Index Market. The AIM consists of approximately 820 companies at the time for writing this article.




Stamp Duty tax savings



AIM listed shares are usually exempt from the 0.5% stamp duty tax. This may not seem significant, but for frequent traders of shares, this can quickly add up. Also, for investors that invest large sums of money into shares, this saving could be significant.




Inheritance tax savings



This article started off with a famous saying about death and taxes. There happens to be a tax associated to death called the inheritance tax. As the name suggests, it’s a tax that the inheritor pays on the wealth he or she inherits – including shares. But AIM shares are exempt from the inheritance tax as long as the shares were held for two years.


The savings outlined above are some of the more easy-to-access tax savings. There are additional tax savings that are possible via the Enterprise Investment Scheme.



P.S If you enjoy learning about the stock market and want to learn how to trade on the stock market, consider signing up to the 30 Day Trading Programme. The programme is free and you can learn at your own pace.


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