Buying shares gives you an ownership stake in a company. However, investing requires more than simply clicking “buy” on an app. It is also important that you understand the tax implications, the risk of loss, the broker’s fees, and the form of shares.
As an investor, learning how to buy shares in a company means using a General Investment Account or a Stocks and Shares ISA through an FCA-authorised broker. In the UK, most investors buy shares through an FCA-authorised investment platform or stockbroker. Direct purchase from a company is uncommon and generally only available in limited circumstances.
Investors may lose some or all of their capital; dividends are not guaranteed, and share prices may decline. Consequently, before making an investment, it is essential to evaluate your investment timeframe, diversification, and affordability.
Read this guide to understand how to buy shares in a company, the benefits and drawbacks of buying shares, and the costs associated with buying shares.
We keep things simple — fixed fees, no hidden charges, and no surprise bills at the end of the year. Tell us a bit about your limited company and we’ll send you a clear quote straight away.
What is a Share in the UK?
Before going into further details of how to buy shares in a company, it is important to understand what a share is. A share refers to the unit of ownership in a company. So when you buy a share, you own a small piece of a business depending on the number of shares you hold. By owning shares in a company, you get significant rights. This includes:
- The ability to vote on company decisions
- The ability to receive dividends if the company chooses to distribute profits.
- Sell your shares for potential financial gain
Owners of one or more shares, whether they are individuals or organisations, are defined as shareholders.
What Does Buy a Share Mean?
Before diving into how to buy shares in a company, you first need to understand what buying a share in the UK means. Buying shares means purchasing an ownership interest in a company, thereby making you a shareholder. As a shareholder, your investment returns typically come from capital growth (an increase in the share price), dividends, and voting rights.
What are the Benefits and Drawbacks of Buying Shares?
When understanding how to buy shares in a company, note that it comes with benefits and drawbacks.
Benefits
- Dividend Income: Many well-established companies distribute a portion of their proceeds to shareholders on a regular basis, thereby generating a secondary income stream.
- Capital Growth Potential: As a company succeeds, its share price may increase over time. Investors selling these shares at a higher price than they originally paid capture capital gains.
- Voting Rights: Owning shares often grants the right to vote. This enables you to participate in the company’s decision-making processes, including approving mergers and electing directors.
- Develop Long-Term Wealth: Historically, shares have often delivered higher long-term returns than cash savings, although past performance does not guarantee future results. You have the option to reinvest dividends, which can further enhance growth through compounding.
Drawbacks
- Capital Risk: Your capital is entirely at risk when you purchase shares. Based on economic conditions, geopolitical events, and market sentiment, stock prices fluctuate daily. You may lose a substantial portion, or even the entirety, of your initial investment if the market experiences a decline.
- Lack of Guaranteed Returns: Unlike fixed-income investments (such as savings accounts or bonds), shares do not guarantee a return.
- Research Commitment: Investing in shares requires significant effort, market analysis, and ongoing monitoring.
How to Buy Shares in a Company?
Here is the step-by-step process to buy shares:
First Step: Choose an Investment Platform
You cannot purchase shares directly from a stock exchange; instead, you must use an investment platform and an application. The most common platforms include Hargreaves Lansdown, AJ Bell, Interactive Investor, and Freetrade.
When evaluating platforms, it is important to evaluate their fee structures (some offer zero commission), minimum deposit requirements, and available investments (UK, US, or international shares).
Second Step: Select the Right Account Type
Choosing the right account type is the most important part of how to buy shares in a company. The amount of tax you owe on any gain depends on the account you select.
Stock and Share ISA
You can consider a Stocks and Shares ISA, as it allows for a tax-free investment of up to £20,000 per tax year. Any dividends or capital gains that are earned are exempt from Capital Gains Tax (CGT) and Income Tax.
General Investment Account (GIA)
Use a GIA to continue investing if your £20,000 ISA limit is reached. Capital gains exceeding the annual exempt amount of £3,000 are subject to Capital Gains Tax.
Self-Invested Personal Pension (SIPP)
A Self-Invested Personal Pension (SIPP) enables you to invest in a diverse array of assets and provides you with complete control over your retirement portfolio. Funds are typically held until the age of 55 (which will increase to 57 in April 2028).
Third Step: Finalise Your Account
Open a regulated dealing account (e.g., via platforms such as IG Trading or Hargreaves Lansdown) and deposit funds to buy shares in a company. To finalise your account, you must provide your National Insurance (NI) number and a legitimate ID, such as a passport or driver’s licence, for tax and identity verification.
Fourth Step: Fund Your Account
After verification, deposit funds through a digital wallet, debit card, or bank transfer. Platforms offer investment options that include both one-time lump sums and flexible monthly contributions.
Fifth Step: Research the Company
Research the company’s financial position, debt levels, and future industry outlook prior to making a purchase.
Sixth Step: Place Your Order
You can log into your account and search for the company by its name or ticker symbol (e.g., AAPL for Apple) and log into your account. Moreover, you can place a market order to buy immediately at the current market price.
What is the 7% Rule in Shares?
When exploring how to buy shares in a company, you must understand the rules that apply to the shares. The 7% rule is an investment risk-management strategy popularised by William O’Neil. It is not a legal or regulatory rule but a personal investing technique used by some investors.
It requires investors to set a strict stop-loss limit to automatically sell a stock if its price falls 7% below the purchase price. The strategy is designed to safeguard your capital and prevent minor market fluctuations from escalating into more severe losses.
Although this particular 7% margin is a widely recognised benchmark, actual market returns may be significantly higher or lower and are not guaranteed.
How Do I Buy Shares Directly In A Company?
If you are wondering how to buy shares in a company directly in the UK, you usually do so through a regulated broker or investment platform. Direct purchases from companies are relatively uncommon.
Purchasing company shares directly requires using an authorised broker or platform. To begin, compare and select a regulated broker or investment app. Furthermore, you can set up an account, deposit funds, and execute a transaction on the stock exchange. Also, when selecting a broker, always check that your investment platform is authorised and regulated by the Financial Conduct Authority (FCA).
You can purchase shares directly from the company through a Direct Stock Purchase Plan (DSPP), if available. You also know that most investors buy shares through a stockbroker or a regulated investment platform. Note that diversifying investments across different companies and sectors can help reduce overall investment risk.
What Fees Are Associated With Buying Shares?
To fully understand how to buy shares in a company, it is important to note that investing is not cost-free. The costs depend on the type of shares purchased and the investment platform used.
Platforms Fees
Many trading platforms charge fees. In general, for holding investments on a platform, an annual fee or a monthly fee may apply.
Stamp Duty
In the UK, Stamp Duty Reserve Tax (SDRT) is typically charged at 0.5% when buying company shares electronically.
Foreign Exchange (FX) Fee
Platforms add a conversion fee when you buy international stocks, which is used to convert your GBP into the local currency.
Dealing Fee
A dealing fee is assessed when a purchase order is placed and is subject to change. Some platforms in the United Kingdom charge a fixed fee, while others offer commission-free trading.
Do You Need to Pay Tax on Shares in the UK?
When considering how to buy shares in a company, another important part to understand is that you may pay tax on dividends and capital gains depending on how you hold your investments.
The rule is simple: investments that are held within a Stocks and Shares ISA are typically exempt from Income Tax and Capital Gains Tax.
If you are investing through a Stocks and Shares ISA, you can pay no tax on your profits. However, capital gains or dividends may be subject to taxation if they are held outside of a Stocks and Shares ISA and your profits exceed the applicable tax allowance.
Is 1000 Pounds Enough To Invest?
That is correct, £1,000 is enough to start buying shares. Many investment platforms in the United Kingdom have minimum deposit requirements. Minimum requirements range from £1 to £25. Thus, a straightforward, diversified investment portfolio can be established with a minimum of £1,000.
How Much Money is Required to Buy Shares?
After learning how to buy shares in a company, many people are confused about how much money is required. Some people speculate that purchasing shares may require an investment of thousands of pounds. However, that is inaccurate. Many platforms in the United Kingdom now allow trading in fractional and low-cost shares. This implies that it is possible to buy shares in a company with a relatively modest amount of investment.
The Bottom Line
Buying shares can support long-term financial growth, but only when decisions are made based on research, affordability, and clear risk management. Learning how to buy shares in a company means selecting a regulated platform and conducting a thorough investigation of the company. You should also check fees and taxes that apply when buying shares, and avoid making decisions based on hype or guaranteed-return claims.
Whether you’re just forming your company or already knee-deep in paperwork, our London-based accountants are ready to jump in. One quick call and we’ll figure out what you actually need.
Need Support With Buying Shares in the UK?
If you are still unsure about how to buy shares in a company, we are here to help you. At LimitedCompanyAccountants, our accountants can review your transactions, calculate taxable gains, record allowable costs, and ensure dividend income is reported accurately to HMRC.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.
