What does it actually cost to invest in shares?

Most investment platforms advertise a dealing fee upfront. Some advertise no dealing fee at all. But if you look at the full picture of what investing in shares actually costs over time, the dealing charge is often the least important number on the list. There are four separate costs involved in buying and holding shares in the UK, and the total is frequently higher than the headline figure suggests. Getting this clear from the start matters, because these costs compound in the same way returns do.

The most visible cost is the dealing fee. This is what a platform charges each time you buy or sell shares. On Hargreaves Lansdown, the largest investment platform in the UK, the standard rate is £11.95 per trade for fewer than ten transactions in a month, falling to £5.95 for more active traders. AJ Bell charges £9.95 per trade. Freetrade and Trading 212 offer commission-free share dealing on their standard accounts. The variation is significant, and the right answer depends partly on how often you plan to trade and partly on the size of your portfolio.

Alongside dealing fees sits stamp duty reserve tax, a government levy of 0.5% applied automatically to most purchases of UK-listed shares. Buy £4,000 of Tesco shares and £20 goes directly to HMRC the moment the trade settles. No platform can waive it and there is nothing to negotiate. It applies to every purchase, every time. The one exception worth knowing is that companies listed on AIM, the junior market of the London Stock Exchange, are exempt from stamp duty. It is one of the structural attractions of the junior market for investors willing to take on the additional risk that comes with smaller companies.

The third cost is the annual platform charge, sometimes called the custody fee or service fee. This is what you pay simply to hold your shares on a platform, regardless of how often you trade. It is where the real differences between platforms emerge. Hargreaves Lansdown charges 0.45% of the value of your shareholdings per year, capped at £45 per year specifically for shares. AJ Bell charges 0.25%, capped at £42 per year for shares. Vanguard charges 0.15% with a maximum of £375 per year. On a portfolio of £30,000, the difference between 0.45% and 0.15% is £90 per year. Compounded over two decades of growth, that difference in fee structure is not trivial.

The fourth cost is the bid-ask spread, and it is the one most new investors overlook entirely. Every share has two prices at any given moment: the bid price, which is what buyers in the market are offering to pay, and the ask price, which is what sellers want in return. The gap between them is the spread, and it represents an immediate cost on every transaction, even on platforms that charge no dealing fee. On heavily traded large-cap companies like BP or HSBC, the spread is tiny, often a fraction of a penny. On smaller, less liquid companies, spreads can run to several percent. A 2% spread on a £3,000 position is an instant £60 cost, built into the execution price before you have thought about anything else.

The misconception that catches most new investors out is the idea that commission-free means cost-free. It does not. Every platform needs revenue to operate, and when the dealing fee is removed from the equation, the business model shifts elsewhere. Commission-free platforms typically make money through premium subscription tiers, currency conversion markups, interest on uninvested cash balances, and in some cases securities lending. The foreign exchange spread alone on an international share purchase can easily exceed what a flat dealing fee would have cost you. This does not mean commission-free platforms are poor choices. For many investors they are excellent. But any comparison needs to be built on total cost, not just the number advertised on the homepage.

There is a second misconception that costs long-term investors considerably more: the idea that the tax wrapper is an optional detail rather than a core part of the cost calculation. Holding shares in a general investment account and holding them in a stocks and shares ISA look identical on the surface. The same shares, the same platform, often the same dealing fee. But outside an ISA, gains above the annual capital gains tax exemption (£3,000 for 2024/25) are taxable, and dividend income above £500 per year is taxable too. Inside an ISA, both are permanently sheltered. For someone reinvesting dividends over fifteen or twenty years, the cumulative tax drag of holding outside an ISA is significant, and it compounds year after year. That is a genuine cost of investing, even though it never appears as a line item on a dealing receipt.

The practical starting point is to run a total cost comparison rather than a headline fee comparison. If you are primarily a buy-and-hold investor building a long-term portfolio, a low annual platform charge with a reasonable cap matters most. AJ Bell’s £42 annual cap on shares tends to win for portfolios above £15,000. If you are planning to trade more frequently with smaller amounts, a commission-free model with a known spread profile may work out cheaper overall. And if you have not yet opened a stocks and shares ISA, that decision should come before any platform comparison. The annual ISA allowance for 2024/25 is £20,000, it resets on 6 April each year, and any allowance you do not use is permanently lost. The tax efficiency of an ISA held for ten or twenty years will almost always outweigh any difference in dealing fees between the platforms on offer.

TL;DR — the short version

• There are four costs involved in buying and holding shares: the dealing fee, stamp duty (0.5% on most UK shares), the annual platform charge, and the bid-ask spread.
• Stamp duty is a mandatory government tax on most share purchases and no platform can remove it.
• Annual platform fees vary considerably and matter more than dealing fees for long-term buy-and-hold investors.
• Commission-free means no dealing fee, not no cost at all — platforms make money in other ways.
• Holding shares outside an ISA creates a real and compounding tax cost that dealing fee comparisons never show.
• Open a stocks and shares ISA first, then compare platform fees based on your own trading style and portfolio size.

Nothing in this article is financial advice. Tax rules change frequently. Check the current ISA allowance, CGT exemption and relevant rules on HMRC’s website or consult a qualified financial adviser for your specific situation.

This article is for informational purposes only and does not constitute financial advice. Investment values can go down as well as up. Always do your own research before making any financial decisions.