Research and analysis

Stamp Duty and Stamp Duty Reserve Tax

Published 13 July 2023

Qualitative research conducted by Ipsos between February and May 2022.

Report authored and prepared by Ipsos (Jamie Douglas, Gabriele Zatterin, Andrew Shaw) for HMRC in August 2022.

HMRC Research report number 694.

Disclaimer: The views in this report are the authors’ own and do not necessarily reflect those of HMRC.

Glossary

Advisory

Advisory brokering is a service that provides investment advice in addition to making trades on behalf of clients, for example, an advisory broker recommends the clients buys or sells certain securities in accordance with the client’s investment goals. The broker receives a fee in addition to the commissions given for the actual trades.

Alternative Investment Market (AIM)

AIM is a sub-market of the London Stock Exchange. It is designed to help emerging or smaller companies access capital from the public market by listing on a public exchange but with greater regulatory flexibility compared to the main stock market.

Certificateless Registry for Electronic Share Transfer (CREST)

CREST is the central securities depository for markets in the UK. It allows CREST members to hold and settle securities electronically.

Derivatives

A derivative is a type of financial security. Its value is derived from the value of one or more underlying financial assets, such as currency, bonds, stocks, commodities, interest rates or market indexes.

Discretionary

Discretionary brokering is a service whereby an authorised broker can buy and sell securities without the client’s consent for each trade. The client must sign a discretionary disclosure with the broker as documentation of the client’s consent.

Exchange-traded fund (ETF)

An ETF is a type of pooled investment security that tracks a particular index, sector or commodity. ETF can be purchased or sold on a stock exchange in the same way that regular stock can.

Execution only

Execution only trading (also known as agency trading) is when trades are made without the client receiving any advice about the merits or risks of the investments or their suitability.

Investment trust

An investment trust is a public limited company that aims to make money by investing in assets, for example shares, in other companies. Owning shares in an investment trust is a way of investing in a variety of different companies. Investment trusts issue a fixed number of shares at launch, so are known as closed-ended funds.

Stamp Duty

Stamp Duty is incurred on items that are traded ‘on paper’, that is using a stock transfer form, or other written instrument, and with a value more than £1,000. The stock transfer form is sent to HMRC along with the payment for stamping. Stamp Duty is payable at 0.5% rounded to the nearest £5.

Stamp Duty Reserve Tax

Stamp Duty Reserve Tax is incurred on electronic (or ‘paperless’) transactions in shares in a UK company or a foreign company with a UK share register. Electronic transactions are usually carried out through CREST, which automatically collects Stamp Duty Reserve Tax and sends it to HMRC. Stamp Duty Reserve Tax is payable at 0.5% rounded to the nearest 1p.

Passive investment funds

A passive investment fund is an investment vehicle that tracks the stock market, a market index or a specific area of the market to determine what to invest in. Most passive funds are operated automatically rather than by a fund manager, which reduces their running costs.

Principal shares trading

Principal shares trading involves a brokerage’s own pool of securities. A brokerage buys securities in the stock market, hold these securities for a period of time, and then sells them. Principal trading allows firms to create profits for their own portfolios through price appreciation.

Unit trust

A unit trust is an unincorporated mutual fund that is run by a fund manager. Unit trusts continue to issue new units in response to demand and the number of investors, so are known as open-ended funds.

Executive summary

HMRC commissioned Ipsos to identify and understand the key causes of fluctuations in Stamp Duty and Stamp Duty Reserve Tax receipts. Our findings are based on one-to-one in-depth interviews with 20 participants (19 brokers and one pension fund manager) conducted between 25 February and 18 May 2022.

Key findings

There was widespread agreement among participants that Stamp Duty and Stamp Duty Reserve Tax had only a minor impact on guiding or influencing trading and investment decision making. They felt investors were more likely to be motivated by considerations around performance and cost-effectiveness, and by wanting to diversify portfolios. As a result, any fluctuations in Stamp Duty and Stamp Duty Reserve Tax receipts were considered to be effects, rather than the primary drivers, of other market trends and investor behaviours.

The trading and investment landscape was perceived to have seen changes, particularly in terms of accessibility, opportunities and the availability of a wider range of investment options. According to our participants, a key reason for this was the impact of technology, apps, and online platforms in making trading and investment cheaper, easier, and more accessible. In turn, participants generally felt this had increased trading opportunities, volumes and frequency, as well as introducing new, younger investors to market.

However, there were participants who noted that increased trading activity did not necessarily mean increased volumes of Stamp Duty and Stamp Duty Reserve Tax receipts. They noted that technology had especially facilitated smaller investments. This was in part because participants felt younger people were more likely to use technology to trade and invest. Since younger people tend to be less wealthy, participants suggested they would generally have less to invest and would invest smaller amounts. Similarly, some participants noted an increase in new investors during the pandemic who participants felt were looking to supplement their incomes and would not have much ‘spare’ money to invest.

Another factor noted by some participants was that investors might only choose to invest small amounts via apps and online platforms, leaving larger trades to professionals. In this respect, some participants noted some brokerages were increasingly moving away from execution-only activities and focusing on their advisory and discretionary trading as a result.

A common theme among participants was the increased popularity of passive investment funds and derivatives (neither of which attract Stamp Duty or Stamp Duty Reserve Tax), particularly among younger investors. This was because they were considered cheaper, lower risk and good ways to gain exposure to new sectors and markets, compared to more traditional stocks and shares. Furthermore, participants felt the growth of trading apps and platforms had made it easier for traders to access these investment options.

Most participants reported that both Stamp Duty and Stamp Duty Reserve Tax were generally considered straightforward, with investors having little need for further advice and support. The participants we spoke to also reported low awareness and knowledge of the exemptions and reliefs that exist for Stamp Duty and Stamp Duty Reserve Tax.

Participants reported experiencing several key periods of market volatility over the past few years, including the COVID-19 pandemic, EU Exit and more recently the invasion of Ukraine and rising inflation. While participants generally agreed that periods of market volatility generally meant more trading activity, there was a range of opinion about the impacts on Stamp Duty and Stamp Duty Reserve Tax receipts. Some felt COVID-19 encouraged greater use of trading apps and platforms and some felt it increased interest in technology shares, which meant more trading activity was focused on the US (where Stamp Duty and Stamp Duty Reserve Tax are not applied).

Participants gave differing views about the impact of EU Exit and more recent market uncertainty on trading behaviours. On the one hand, there were those who said that the EU Exit and current market uncertainty would make the UK less attractive to investors, leading to comparatively less Stamp Duty and Stamp Duty Reserve Tax. On the other hand, there were those who said that no long-term impacts had arisen following EU Exit. Some participants felt that current market uncertainty due to inflation and the invasion of Ukraine might be making UK investors more cautious or less willing to invest abroad. As a result, comparatively more trading activity could be focused on UK investments again, meaning a potential increase in Stamp Duty and Stamp Duty Reserve Tax.

1 Introduction and background

1.1 Research background and questions

HMRC commissioned Ipsos to identify and understand the key causes of fluctuations in Stamp Duty and Stamp Duty Reserve Tax receipts.

Stamp Duty receipts saw a decline between financial year 2005 to 2006 and financial year 2009 to 2010, followed by a steady increase until financial year 2014 to 2015. After this, there has been general growth in Stamp Duty receipts, with a spike in financial year 2016 to 2017. Stamp Duty Reserve Tax receipts increased year-on-year between financial years 2003 to 2004 and 2007 to 2008. The 2008 financial crisis marked a decrease in Stamp Duty Reserve Tax receipts, which continued until financial year 2013 to 2014. Since then, Stamp Duty Reserve Tax receipts have been somewhat higher, but with some fluctuations.

This research sought to identify and explore the factors driving these changes. We addressed the following topics:

• changes to market behaviours

• changes to client behaviours

• changes to broker behaviours

• changes in the trading of derivatives or other forms of trading

• whether using investment types that do not attract Stamp Duty and Stamp Duty Reserve Tax is an active decision or a by-product of other behaviours

• the role of exemptions and reliefs

• the role of technology, apps and online platforms

1.2 Methodology

Qualitative approaches are used to explore the nuance and diversity of views, the factors which are underlying or shape them, as well as the ideas and situations in which views can change. The results are intended to be illustrative of the range of views and to offer insight into overarching themes. They are not intended to be statistically representative. Verbatim comments have been included in this report to illustrate and highlight key points and common themes. Where verbatim quotes are used, they have been anonymised and attributed by participant type and job title. Each verbatim comment sets out the individual view of the participant who made them. They do not reflect the views of Ipsos or HMRC.

Our findings are based on one-to-one qualitative in-depth interviews with 20 participants. This breaks down as 19 interviews with brokers and one interview with a pension fund manager. All interviews were conducted between 25 February and 18 May 2022.

We used a combination of free-find methods and HMRC-provided sample to recruit participants. Participants carried out one or more types of trading, including execution-only, advisory, discretionary and principal shares trading (see Table 1.1). They also reported a range of job titles (see Table 1.2).

Table 1.1 Participant type

Participant type	Total
Execution only broker	9
Advisory broker	3
Discretionary broker	13
Principal shares trading broker	1
Pension fund manager	1
Total	20

Please note that the types of broker (execution only, advisory, discretionary and principal shares trading) were not mutually exclusive (for example, brokers could sit across a number of these categories).

Table 1.2 Participant job title (self-defined)

Participant job title (self-defined)	Total
Asset manager	1
Equity broker / trader	2
Investment consultant	1
Investment director	1
Investment manager	8
Stockbroker	4
Wealth manager	2
Pension fund manager	1
Total	20

We did not include brokers who were not involved in decision-making relating to investment strategy, client investments or portfolios. We also did not include brokers whose activities did not relate to UK assets subject to Stamp Duty and Stamp Duty Reserve Tax.

1.3 COM-B framework of behaviour change

The COM-B framework, developed by Michie et al. 2011, models behaviour and behaviour change as a result of the interaction of three factors:

Capability (C): the psychological or physical ability to enact a behaviour

Opportunity (O): the physical and social environment in which a behaviour can take place

Motivation (M): the reflective and automatic mechanisms that activate or inhibit a behaviour

This report contains a section on each of these three factors. In these sections, we explore the influence these factors have had on trading and investment behaviours and the impact for Stamp Duty and Stamp Duty Reserve Tax receipts.

2 Investment motivations

Most participants we spoke to felt that Stamp Duty and Stamp Duty Reserve Tax do not heavily influence or drive investment behaviours. There were two main reasons for this. First, they felt that clients generally accept Stamp Duty and Stamp Duty Reserve Tax as a cost, but one that is low compared to other costs. They felt other factors, such as return on investment, played a more significant role in clients’ decision-making. Second, most participants reported that clients were increasingly looking to diversify their portfolios. This meant using a wider range of investment vehicles, some of which do not attract Stamp Duty or Stamp Duty Reserve Tax.

There was no mention in the interviews (prompted or unprompted) of activities to avoid Stamp Duty or Stamp Duty Reserve Tax, for example, by exploiting loopholes. There was also no mention (prompted or unprompted) of any behaviours related to overseas clearance services or depositary receipt systems.

2.1 Cost of trading

Cost effectiveness was highlighted by participants as a key motivating factor driving trading and investment decisions. However, the costs of Stamp Duty and Stamp Duty Reserve Tax (0.5%) were considered relatively low. This is compared to other taxes, such as income tax or capital gains tax, and other costs involved in trading and investment, for example, commission. Participants felt these higher taxes and costs were much more likely to influences investors’ decisions than Stamp Duty and Stamp Duty Reserve Tax.

”[Stamp Duty] is not a tax that influences behaviour. It’s not something like a change in capital gains tax or a change in income tax …[which] significantly impact investor behaviour … Stamp Duty and reserve tax definitely doesn’t have that kind of consideration for people.”

(Advisory, discretionary and execution-only; Investment manager)

Some participants reported that the most important factors for investors to consider were around the return on investment and the perceived undervaluing of stock. The greater these were, the more attractive the investment. If a particular investment vehicle happened not to attract Stamp Duty or Stamp Duty Reserve Tax, this was considered an added bonus, but not in itself a key factor in decision-making. For example, participants noted that some investors were attracted to the Alternative Investment Market, not because they would not pay Stamp Duty or Stamp Duty Reserve Tax, but because these are high-growth companies which typically promise good returns. Similarly, one participant noted that, if an investor felt an investment opportunity was attractive, they would not be put off if it was subject to Stamp Duty or Stamp Duty Reserve Tax.

“If someone wants to buy an investment that they think is undervalued or attractive, they're not going to be put off from doing so because of Stamp Duty Reserve Tax.”

(Advisory, discretionary and execution-only; Investment manager)

“No one, to be honest, when they're buying shares to put in a portfolio asks whether the particular share they're buying is subject to stamp duty reserve tax or not, because your priority is looking at the investment return, and then tax liabilities come second.”

(Advisory, some discretionary; Investment manager)

Nonetheless, if there were two similar types of stock that differed only by whether or not they attracted Stamp Duty or Stamp Duty Reserve Tax, most participants we spoke to felt clients would invariably choose the stock that did not attract Stamp Duty or Stamp Duty Reserve Tax in these instances. They suggested this might especially be the case for clients that trade a lot since they would typically be paying Stamp Duty and Stamp Duty Reserve Tax more frequently. However, as one participant also noted, clients rarely, if ever, raised this an issue because Stamp Duty and Stamp Duty Reserve Tax were generally accepted as a cost to be paid.

“For some clients that trade quite a lot, if they can find a similar stock that doesn’t attract stamp duty that will offer a similar type of return then they’ll, obviously, try and use that position versus pay 0.5%.”

(Discretionary and execution-only; Wealth manager)

2.2 Diversifying portfolios

There was agreement among our participants that investors were increasingly looking to diversify their portfolios. A key motivation for this was managing risk. This included both increasing their range of investment types and investing in a wider range of firms and sectors. One investment manager considered portfolio diversification to be driven in part by regulation following the 2008 financial crisis. They suggested that regulation had made investment in single shares less attractive to investors.

“There has been increased regulation since the 2008 financial crisis. There is so much regulation now that people are too scared to buy single shares.”

(Advisory, discretionary and execution-only; Investment manager)

Some participants also reported some of their clients being increasingly motivated to invest in international markets, especially the US, and how, by taking a global view, a client’s portfolio could be diversified by exposing them to opportunities in new or different markets. There were participants who felt this was also driven by the perceived underperformance of the UK market, which made companies in the US and Europe appear more attractive to UK investors. With a greater proportion of a client’s investments being in other markets, money is diverted away from UK investments which would attract Stamp Duty and Stamp Duty Reserve Tax.

“Most clients want to take a global view, want to diversify and be exposed to other markets … Previously it was more UK-based.”

(Discretionary; Investment manager)

“People invest overseas a lot more now than they used to. That's because the best companies in the world are no longer in the UK. The best companies are in the US and Europe. Well, mainly the US, really."

(Advisory, discretionary, execution-only; Investment manager)

3 Investment opportunities

Most participants we spoke to reported that new investment opportunities had become available to brokers and investors over the past 10 to 15 years. They felt this was driven by growth in technology, apps and online platforms, as well as the increased popularity of passive investment funds and (to a lesser extent) derivatives trading.

3.1 Technology

The increased prevalence of trading and investment apps and online platforms had three key impacts, according to our participants. It has made trading and investment cheaper, more accessible to a wider audience, and easier and more convenient. As a result, participants felt technological innovations have attracted new types of investors and helped to increase popularity of certain trading activities, as well as popularity of certain investment types. This in turn impacted upon perceptions of the possible role and influence of technology on volumes of Stamp Duty and Stamp Duty Reserve Tax receipts.

3.1.1 Cost, accessibility and convenience

A common perception among participants was that technology, apps and platforms had made trading and investment cheaper. They noted that investors saved money by using apps and platforms to trade stocks and shares rather than paying commission or other brokerage charges. They felt the growth in these technologies had increased competition in the fintech market over the past decade, causing the cost of such apps and platforms to fall. One participant suggested these cost savings could mean investors are less likely to notice Stamp Duty or Stamp Duty Reserve Tax, especially as these are already low (0.5%) and because Stamp Duty Reserve Tax is applied as an automatic, rather than manual, part of the process.

“I think technology has made [trading and investment] easy for [investors], because it's reduced the charges, so they don't really notice stamp duty in that trade.”

(Execution only; Stockbroker)

Another common theme among participants was that technology had opened up trading and investment by making it more accessible and convenient for a wider audience. Participants who said this noted that investors can use their own devices to make transactions and view stocks and shares whenever they want without using a broker.

“Retail investors can trade through their phones now without any problems.”

(Discretionary, execution-only; Investment manager)

Participants who said this also felt the impact of increased accessibility and cost-effectiveness was, for some investors, to increase the frequency of their transactions. They felt the frequency of transactions had increased because greater convenience meant more opportunities for trading.

”[Technology is] making everything more accessible, more cost-effective, so it's cheaper and generally lends itself to a greater number of transactions.”

(Discretionary; Investment manager)

However, there were also participants who felt these transactions were more likely to be for smaller amounts. They suggested that trading via apps and online platforms was more ‘casual’ than using a professional broker. They felt investors might only be willing to trade in smaller amounts via apps and online platforms, leaving their larger investments to brokers. For example, there were participants who reported that their brokerage was focusing more on advisory and discretionary trading since clients could now perform simpler, lower-value trades themselves.

“Execution-only is not as active anymore. More clients are now looking for cheaper alternatives … Business is moving towards wealth management.”

(Discretionary, advisory, execution-only; Investment manager)

3.1.2 New types of investor

There was a perception among participants that apps and platforms had made trading and investment accessible to various new audiences over the past 10 to 15 years. Participants with this view highlighted the role of technology, apps and platforms in attracting younger investors, who were already comfortable using such technologies. They felt that trading activity would generally increase if there were more investors. As a result, they felt Stamp Duty and Stamp Duty Reserve Tax would generally be expected to increase as well (all things being equal).

“Less barriers to entry now for smaller investors and therefore probably an increase in the amount of transactions, which increases the amount of points of things eligible for stamp duty.”

(Advisory, some discretionary; Investment manager)

There were also participants who noted that these younger investors would generally be less wealthy, so their individual investments would be for smaller amounts. One noted that some apps made it easier to invest smaller amounts by allowing trading of part, rather than full, shares. Some suggested that increased trading activity but of smaller amounts meant the increase in Stamp Duty and Stamp Duty Reserve Tax receipts might, therefore, be smaller relative to the increase in overall trading activity.

3.2 Passive investment funds

Another common perception among our participants was that passive investment funds were becoming increasingly popular. These included Exchange Trade Funds (ETFs), unit trusts and tracker funds. Participants with this view felt that passive investment funds offered brokers, clients and investors cost-effective opportunities to increase exposure to new sectors and new markets, for example, the technology sector or the US market.

“Quite a significant chunk of the market is the self-managed market … there has been, I think, quite a big shift over the years towards tracker funds. That's partly to do with cost sensitivity.”

(Discretionary; Investment manager)

One common theme was that passive investment funds were particularly attractive to younger, less wealthy and more casual investors, as they are generally less risky than stocks and shares. Since passive investment funds do not attract Stamp Duty and Stamp Duty Reserve Tax, any increase in their usage would not cause an increase in Stamp Duty and Stamp Duty Reserve Tax receipts, despite contributing to an increase in overall trading market volumes.

“People with less money are more likely to go with ETFs, whereas stocks and shares are mainly the preserve of richer people because of the risk you're taking.”

(Discretionary; Asset manager)

There were participants who also reported unit trusts becoming more popular among fund managers. One participant explained that fund managers were motivated to use unit trusts rather than investment trusts because unit trusts were less constrained and open-ended. This participant reported that instead of creating more shares, fund managers could create new units quickly and flexibly.

“A lot of [fund] managers run unit trusts rather than Investment Trusts. The reason they do that generally is because they are less constrained, they can run larger strategies … in order for [managers] to create more shares they have to get board approval and then have to go to the market and raise the funds. But with mutual funds, you just create new units. They're open-ended.”

(Discretionary; Investment manager)

Participants who said this felt that if fund managers increasingly chose to use unit trusts, there would be a relative decrease in Stamp Duty and Stamp Duty Reserve Tax receipts, since unit trusts are not subject to Stamp Duty or Stamp Duty Reserve Tax.

3.3 Derivatives

It was uncommon for participants themselves to engage or deal with derivatives. This was because derivatives were often beyond participants’ specialisms, or not a core component of their firms. Derivatives were seen by participants as becoming more popular in the trading sector, especially among retail investors.

“I think a lot more retail investors, so people that aren’t professionals, are trading in derivatives. It’s a lot easier to trade in derivatives than it used to be 5 years ago.”

(Discretionary; Investment manager)

There was some concern among participants about the increased popularity and availability of derivatives trading, driven by the growth of apps and online platforms. Participants who felt this thought that derivative trading should be handled by more experienced traders, as opposed to retail investors. However, there were participants who felt that derivatives trading was less common in the UK than in the US, although they suggested it was becoming more popular among UK investors.

“That’s the dangerous part of technology … normally derivatives should not be available to people who don’t have the correct experience.”

(Advisory, some discretionary; Investment manager)

Some participants thought that the more retail investors engaged with derivative trading, the higher the risk of market volatility and instability. They were concerned that less experienced traders dealing in derivatives might cause unnecessary short-term shocks to the market.

“I think [derivatives trading] has contributed to much more volatility and much more shorter-term trading, and I suppose dealing volumes have obviously gone up, if you compare with maybe 20 years ago.”

(Discretionary; Investment manager)

4 Investment capabilities

4.1 The role of advice and support

Advice and support around Stamp Duty and Stamp Duty Reserve Tax were not generally felt to be necessary or an influential factor driving behaviours, according to our participants. Overall, participants felt that Stamp Duty and Stamp Duty Reserve Tax were straightforward taxes, and seldom required additional advice or guidance.

Participants generally reported that they did not often deal with specific issues or queries about Stamp Duty and Stamp Duty Reserve Tax. Instead, they reported that any issues would generally fall under the administrative functions of specialised teams in their firm’s administrative department. Some participants referred to this as the ‘back office’.

”[We have] an internal team of specialists within our firm that we would refer to and I presume they would have some kind of link with government.”

(Discretionary; Investment manager)

Some participants from smaller firms lacking the extra administrative resources of larger firms would turn to online sources and external consultants for any support needed. These participants commonly mentioned HMRC or the London Stock Exchange websites as reliable sources of information around Stamp Duty and Stamp Duty Reserve Tax.

“The London Stock Exchange, yes, or maybe the HMRC website because [Stamp Duty] is a UK tax.”

(Discretionary; Asset manager)

Some participants said that the younger and newer retail investors would also regularly use social media to get support and advice around trading and investment. Well-known platforms such as Reddit and Twitter were seen as popular destinations for younger investors. This suggested that traditional brokers and traders might have less influence on the trends seen among younger, newer investors.

“Now you have the millennial traders … they use Twitter and follow groups on Reddit and follow advice on social media.”

(Execution only, some principal shares trading; Equity trader)

4.2 The role of exemptions and reliefs

Overall, our participants had relatively little to say about exemptions and reliefs around Stamp Duty and Stamp Duty Reserve Tax and awareness of such reliefs and exemptions was seemingly low among the participants we spoke to. Participants did not spontaneously mention any specific types of exemptions or reliefs. Even after being prompted by the research team, participants were mostly unaware of any specific reliefs around Stamp Duty and Stamp Duty Reserve Tax.

“I haven't really heard of these [exemptions or reliefs], so that's not something I've come across personally.”

(Execution only; Stockbroker)

5 Key periods of market volatility

Participants reported that in the past 10 to 15 years there have been several periods of major international or global market volatility, including the 2008 financial crash, the UK’s exit from the EU, the COVID-19 pandemic, the invasion of Ukraine, rising inflation, and the cost-of-living crisis. Most participants we spoke to reported that periods of market volatility often drive an increase in trading activity, but that only some of this would result in corresponding increases in Stamp Duty and Stamp Duty Reserve Tax.

5.1 COVID-19

The impact of COVID-19 on trading behaviours, trading activity and Stamp Duty and Stamp Duty Reserve Tax receipts was a common theme among our participants, although there was a range of views on what the impact was.

According to our participants, one key impact of the COVID-19 pandemic was on working patterns, with large portions of the workforce forced to work from home or furloughed. Participants who mentioned this suggested this impacted the profile of new-to-market investors, the opportunities for trading and the popularity of certain sectors and markets.

There was a common perception among participants that COVID-19 created an environment that encouraged more people to start using trading apps and platforms (see Section 3.1). They felt new investors were more likely to be people who were younger, living alone, working from home or on furlough. They suggested that these new investors were keen to supplement their income and considered trading apps and platforms an accessible, cheap and convenient way to do this. In addition, they suggested there were more opportunities for personal trading when investors were working from home as participants felt it was harder or less appropriate to do this when in the office. As a result, trading activity and Stamp Duty and Stamp Duty Reserve Tax would be expected to increase.

“Especially, with COVID, and things like that, a lot of people were redundant. I noticed that the amount of trades I was doing in a day had gone up from before that. A lot of people were looking into trading as a source of income. They were trying to build their wealth through investing into stocks and shares.”

(Execution-only; Stockbroker)

“Less barriers to entry now for smaller investors and therefore probably an increase in the amount of transactions, which increases the amount of points of things eligible for stamp duty.”

(Advisory, some discretionary; Investment manager)

There were participants who noted that these new, younger investors were likely to be less wealthy so would trade with smaller amounts of money. Although there was an increase in overall trading activity, the increase in Stamp Duty and Stamp Duty Reserve Tax would likely be relatively small.

“There was evidence during lockdown that people were still trading more, but I think was for very small amounts of money … they're younger, and it's smaller amounts.”

(Discretionary (mainly); Stockbroker)

There were also participants who reported that self-isolating and lockdowns increased both individuals’ and businesses’ reliance on technology for remote working, socialising and staying in touch. They felt this made stocks and shares in technology firms and the technology sector more popular. This in turn was seen to have encouraged more trading in the US market, where many of the largest and most popular tech companies are based. Since Stamp Duty and Stamp Duty Reserve Tax are not applicable to the US market, increased trading activity would not result in increased Stamp Duty and Stamp Duty Reserve Tax receipts.

“Over COVID there was a big popularity in US shares because a lot of those were the technology shares, and shares that were popular during the pandemic.”

(Advisory, some discretionary; Investment manager)

5.2 EU Exit

Some participants reported a short-term spike in trading activity immediately after the EU Exit Referendum in 2016 but there were differences in their views on long-term impacts. Some participants felt one impact was that EU Exit had made the UK less attractive to foreign investors in the longer term. For example, one participant spoke of post-EU Exit regulations and uncertainty around the UK’s market strength causing a drop in their European client base. This would mean a longer-term decrease in trading activity and so a longer-term decrease in Stamp Duty and Stamp Duty Reserve Tax receipt volumes.

“Brexit has certainly made it more complicated for overseas clients. The regulations make it more difficult. We have certainly seen a drop in our European clients.”

(Execution only, some principal shares trading; Equity trader)

Other participants reported that trading activity had generally remained constant. For example, one participant felt that, although there was increased trading activity in the short-term, there had been no long-term changes in investment behaviours, trading volumes or Stamp Duty and Stamp Duty Reserve Tax receipts following the Referendum or EU Exit.

“I think the level of volatility and the level of activity over the last 5 years has mainly been quite evenly spread, apart from just before Brexit and people in a mad rush to get their ducks in a line.”

(Discretionary; Asset manager)

5.3 Current market uncertainty

Participants reported that recent events, such as the invasion of Ukraine, rising inflation and the cost-of-living crisis, were causing uncertainty in both the UK and international markets. Some participants reported the invasion of Ukraine creating increased market volatility and increases in trading activity, resulting, as a by-product, in an increase in Stamp Duty and Stamp Duty Reserve Tax receipts.

” … With what's happened in Ukraine over the last couple of weeks … there's enormous volatility and that means that there's a lot of people buying, a lot of people selling. There's tax being paid every time that happens.”

(Discretionary; Investment manager)

Other participants noted that some investors are being cautious and waiting to see the longer term impact of Russian sanctions on prices, interest rates and inflation before making further investment decisions. One participant suggested that increased inflation would mean less trading activity as clients would have less ‘spare’ money to invest.

“In terms of number of transactions, I would expect it to decrease … Inflation is going to lead to less spare money for clients.”

(Execution only; Equity trader)

At the same time, some participants said current market uncertainty was making more well-known, familiar or traditional ‘blue chip’ investment options (such as energy and pharmaceuticals) more popular. They felt that investors considered these options safer or less risky than high-growth sectors like technology which were popular during the pandemic. These participants suggested the US market had peaked and was now becoming less popular among UK investors, who were refocusing investment and trading in UK stocks and shares, which could potentially lead to an increase in Stamp Duty and Stamp Duty Reserve Tax receipt volumes.

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