Private trading of shares

[Art]

Hi All,

If I wanted to purchase some shares from a friend, presumably we are
free to negotiate a price as we see fit. After we have done this, as I
understand it, two things need to be done:

1. Transfer ownership of the shares.
2. Pay the stamp duty (0.5%)

Is this all that needs to be done? Is the form used for transfers
generic (i.e. pick it up from the post office), or is it specific to
the company issuing the shares?

I assume the stamp duty form is generic. Is the stamp duty due on the
"market" price of the shares, or the real amount that I paid for them?


Thanks,

Art

 

[Stephen Burke]

If I wanted to purchase some shares from a friend, presumably we are
free to negotiate a price as we see fit. After we have done this, as I
understand it, two things need to be done:

1. Transfer ownership of the shares.
2. Pay the stamp duty (0.5%)

I've done this a number of times. A fair price is probably to take the
mid-market price shown in the FT. Watch out for ex-dividend dates, make sure
you know who any dividend belongs to. The sale is a chargeable event for CGT,
but the IR should be happy with a price close to the market price. It's
probably worth you both putting it in writing in case of any future query.

Is this all that needs to be done? Is the form used for transfers
generic (i.e. pick it up from the post office), or is it specific to
the company issuing the shares?

It's a standard format although different registrars may have slightly
different versions. Look on the registrar's web site, they generally have them
downloadable as PDF files. You also need a form from the stamp office, which
may also be on the web or you can get them to send you one. You fill in both
forms and send them to the stamp office with a cheque, they stamp the transfer
and you then send it to the registrar (with the certificates of course).

Incidentally, registrars seem to be very picky about getting exactly the
right spelling for things like names and addresses, make sure you get
everything the way it is on e.g. a dividend slip (including any mistakes!).

I assume the stamp duty form is generic. Is the stamp duty due on the
"market" price of the shares, or the real amount that I paid for them?

It's on the amount you pay - note that it's 0.5% rounded up to the next £5,
which may affect what you want to pay! I think you can still claim exemption
if it's a gift, but it's probably not a good idea to do that if it's really a
sale.

 

[Art]

Art <[email protected]> wrote:

I've done this a number of times. A fair price is probably to take the
mid-market price shown in the FT. Watch out for ex-dividend dates, make sure
you know who any dividend belongs to. The sale is a chargeable event for CGT,
but the IR should be happy with a price close to the market price. It's
probably worth you both putting it in writing in case of any future query.

The main issue we have is that the shares we are thinking about
trading are very illiquid (they're listed on OFEX) and there haven't
been any trades for several months. So determining a fair price
becomes a bit trickier (I think). Also presumably as soon as we trade
the shares, the exchange will be aware of this and will change the
price to match the price of our trade? Or is the price entirely down
to the market-makers and not the exchange? At the moment the market
makers will only carry out trades on a matched basis.

[snip helpful info on forms]

Thanks,

Art

 

[Stephen Burke]

The main issue we have is that the shares we are thinking about
trading are very illiquid (they're listed on OFEX) and there haven't
been any trades for several months. So determining a fair price
becomes a bit trickier (I think).

If you want to stay friends with whoever you're trading with, make sure you
are both aware of all relevant information about the company and that you are
both happy with the deal. There is no real answer to what constitutes a fair
price in that situation, you can use the last traded price as a guide but
things will no doubt have changed, and it may also depend on your motives for
buying or selling, e.g. a forced seller can normally expect a worse price.
You could agree to make an adjustment when the next real trade happens (or
just wait until then).

Also presumably as soon as we trade
the shares, the exchange will be aware of this and will change the
price to match the price of our trade?

I doubt that your trade will change anything, unless it's a significant
fraction of all the shares in issue. The price is set by the supply and demand
balance (such as exists) and that isn't affected by your trade.