How to prepare for the scrapping of paper share certificates

Paper share certificates are scheduled for abolition and, although no date has been set, the government’s digitisation task force is expected to deliver its final recommendations and an implementation plan this spring. So if you hold any of your listed securities, such as single-company shares or investment trusts, via some of the estimated 10mn paper share certificates, you should take steps now to ensure that you maintain your shareholder rights when this happens.

If you hold shares in a company via a paper certificate you are the legal owner of the shares and your name is on that company’s register. This means that you receive correspondence from the company, can attend meetings such as the annual general meeting (AGM), take part in company votes, ask the company questions and receive dividends directly rather than via a go-between.

But the government proposes turning all certificated shares into ‘nominee shares’, which are held by an intermediary such as an investment platform or a broker. This means that you only have a beneficial interest in the securities and no direct relationship with the company, so don't automatically get communications or have the ability to take part in company votes and attend meetings. Not all platforms automatically let their customers know when a company in which they hold shares is holding a meeting, and nominee shareholders need a letter of representation from their platform to be able to attend that company’s meetings.

And the government’s digitisation task force’s proposals don’t stipulate that platforms and brokers will have to maintain the shareholder rights of former paper certificate holders when they all become electronic. Many shareholders are deeply angry about how the legislation will trample over their shareholder rights, as we outlined in November ('This digital plan will trample all over shareholder rights', IC, 10 November 2023).

But some platforms enable you to have these rights even though you hold nominee shares. You may already have an account with one of them, but as many don’t enable you to have shareholder rights automatically, you might need to indicate this in your account or contact your platform to let them know. Otherwise, you will need to consider opening an account with one of them if you want active involvement with the listed companies you hold.

There are benefits to holding your securities electronically. This enables you to hold them within an individual savings account (Isa) and self-invested personal pension (Sipp), which is not possible for shares held via paper certificates. A key way to get the best possible return from your investments is to hold them within a tax-efficient environment, so you should hold as many of them as possible in an Isa or Sipp. Investments within Isas grow free of income and capital gains tax (CGT), and you can withdraw from Isas tax-free – a good reason to convert your paper certificates to electronic shares. 

Trading shares held electronically is faster than trading paper certificates, making it more likely that you will be able to do this at or near to the prices you want. If you sell listed securities outside a tax-efficient wrapper and need to work out whether you owe any CGT, if you hold them electronically your investment platform is likely to be able to provide the necessary cost information to calculate the gain.

Not all investment platforms facilitate trading of paper share certificates – for example, you cannot buy or sell share certificates through Hargreaves Lansdown (HL.) or Barclays Smart Investor. And it is cheaper to sell your shares if you hold them electronically. For example, EQ Shareview offers certificated dealing and charges 1.5 per cent on the first £50,000 traded and 0.25 per cent on the remainder, with a minimum fee of £45 if you do the trade online and £60 if over the phone. This is more expensive than trading electronic shares on one of the main investment platforms. 

If you hold most or all of your savings and investments on one platform you can “get a more holistic view of your finances to help you make better decisions”, says Malcolm Peacock, head of Isas at Hargreaves Lansdown. Having everything in one place can also make it easier to pass on assets to beneficiaries such as your spouse and children after you die.

Holding shares digitally also means you don’t run the risk of losing or damaging your paper share certificates, and the complications and costs this involves. For example, if you lose share certificates and use EQ Shareview you need to contact it by phone or in writing, and it will place a restriction on the certificates to prevent them from being used fraudulently. You need to tell EQ Shareview about any certificates you still hold so that it can identify which ones are missing.

To get replacement certificates, you need to complete a letter of indemnity form and get countersignature by an authorised UK bank or insurance company that is a member of the Association of British Insurers. It has to underwrite any possible liability of the certificate being used fraudulently, so there is often a fee for a countersignature.

Alternatively, EQ Shareview can arrange for the countersignature to be waived on the letter of indemnity form, but charges a fee if the shares are worth more than £50. For shares worth between £50 and £150 it costs £16; for shares worth between £150 and £1,000 it costs £24; for shares worth between £1,000 and £5,000 it costs £36; and for shares worth between £5,000 and £10,000 it costs £54. For shares worth between £10,000 and £100,000 it costs between £75 and £676 on a tiered scale depending on their value, and you have to fill in an application form. There is also an administration fee of £50 for shares worth £150 or more.

Some platforms offer nominee shareholders most of the rights that holders of paper certificates have. With Hargreaves Lansdown, for example, you “receive any dividends paid, are still eligible for most shareholder perks, and have the right to vote at and attend AGMs”, says Peacock. We offer “a free digital voting service and the option to virtually attend the AGMs for the companies [our customers] invest in”.

The Association of Investment Companies (AIC) has compiled a list of investment platforms that offer investment trusts and enable you to vote your shares in them, as follows:

The AIC also sets out what you need to do to attend shareholder meetings if you hold shares via a number of platforms at www.theaic.co.uk/how-to-attend-an-AGM.

If the broker or platform you use isn’t on these lists, contact them to ask what transferring your physical share certificates to them involves and if there are charges for this. Also ask if it enables you to have shareholder rights, the details of what they offer and if there are any charges for it.

Switching to digital

You can transfer paper share certificates into general investment accounts on a number of investment platforms, including Hargreaves Lansdown and AJ Bell (AJB), for free.

When you switch your paper share certificates to a platform you need to fill in forms and provide some personal details. For example, to deposit physical UK share certificates into a general investment account on Interactive Investor, you select ‘Cash & Transfers > Transfer in’ from your account menu, then ‘deposit UK share certificates’ and click ‘transfer now’. You enter the name of the security or epic code in the search bar and choose the name of your stock from the dropdown menu. You enter the number of shares you wish to transfer, personal details and address, and click ‘Create Transfer Form’, which opens in a new window.

All the details you enter must match the details on your certificates exactly. You sign the form and return it with your paper certificates to Nominee Department, interactive investor, 2nd floor, One Embankment, Neville Street, Leeds LS1 4DW – ideally by recorded or special delivery to prevent your physical share certificates from being lost. Interactive Investor aims to apply the shares to your account within three to five working days of receiving your CREST form and share certificates, and it can then take three to five working days for the shares to settle on your account as it sends the documents to the company registrar for approval.

You can't transfer share certificates to an Isa unless they belong to an employee share save scheme, and 90 days have not passed since the date of exercise. Interactive Investor also requires a letter of appropriation from the share plan manager. If you want to move other types of shareholdings to within an Isa, you can do a ‘bed and Isa’ transaction whereby after you have transferred them to a general investment account, you sell them out of this and repurchase them within an Isa.

On Interactive Investor, you don’t need to do anything else to exercise your shareholder rights because in 2021 the platform switched its customers to its UK online voting service so that they are automatically included rather than having to opt in. Its customers are notified when they are eligible to place a vote, and of shareholder events such as AGMs, via its voting mailbox service online – unless they unsubscribe from the service.

You also need to have a general investment account open on Fidelity before you can transfer paper share certificates in. To open one, you need to provide your debit card details for single payments, or bank or building society details to set up a regular savings plan. To make the transfer, for which Fidelity does not charge, you search to see if it offers the shares you want to transfer in. If this is the case, you fill in a stock deposit instruction form, which asks for information including your National Insurance number and nationality, and list each asset, the number of shares you have in it and the total number of certificates per transfer instruction. You need to fill in a CREST transfer form for each company whose certificates you hold. Fidelity has to have a physical signature on the CREST form, so you need to post the completed forms and paper share certificates to Fidelity International, PO Box 391, Tadworth, KT20 9FU. When Fidelity receives your paperwork it can take up to 10 working days to process the share certificates into your account.

You cannot transfer paper certificates into a Fidelity Isa, with the exception of employee share save schemes where Fidelity has arrangements with the employers.

If there is a corporate action on an investment you own, you need to be registered for Fidelity’s online services to be notified of the event by secure message. You can take up any potential election through your online account, but as Fidelity’s corporate actions service is online-only it won’t notify or allow participation through any other method. This enables you to submit a proxy vote at AGMs and extraordinary general meetings. But you can elect to attend in person and receive your meeting invitation via recorded delivery.