What is the difference between a share allotment and a share transfer?

Shares are issued in a company for various reasons, one of which being to raise money. The amount paid on the shares contributes to the total amount of capital in the company. The holder of the new shares will become a shareholder i.e. part owner of the company.

Shares can either be allotted or transferred. If shares are allotted, then the company would issue new shares (also known as a share issue) in exchange for a monetary sum. If shares are transferred, then a shareholder would either sell their shares to another shareholder or a third party for value or transfer their shares for nil value to their spouse or children. A share transfer concerns the shares already existing in the capital of the company.

A share transfer does not alter the overall share capital of the company as existing shares will be transferred to another, meaning no change to the equity in the company. A share allotment, however, means new shares are created, increasing the company’s share capital.

You will usually see a share transfer occur when a shareholder wants to exit the company or wants to transfer their shares to their spouse or children, whereas a share allotment occurs when the company wishes to raise money and grow the business or otherwise introduce a new shareholder without any existing shareholders parting with their shares.

Regardless of whether you obtain shares through a share transfer or a share allotment certain legal documents and procedures will have to be followed, which may differ between the two.

Whether shares are obtained through a share allotment or a share transfer, tax will have to be paid on the dividend received from the shares. At the time of writing dividends on the first £1,000 are taxed at 0% and for anything over £1,000 dividends will be taxed at 8.75% for basic tax payers (at 20%), 33.75% for higher tax payers (at 40%) and 39.35% for additional tax payers (at 45%).

If/when shares are sold a shareholder may also be liable to pay capital gains tax on the gain (profit) they made on the subsequent sale of the shares. For the 2023/2024 tax year the capital gains allowance is £6,000 which means you can dispose of shares worth £6,000 without paying any tax however, if the value of the shares is in excess of £6,000 then the rates payable on capitals gains is 10% basic rate and 20% higher rate.

Note also that if a shareholder acquires their shares through purchase, they may be liable for stamp duty at 0.5% on the purchase.

• By Nafissa Yousaf, Trainee Solicitor