Capital Gains Tax (CGT) is a tax on profit you make when you sell (also known as “disposing of”) an asset that’s increased in value.
Anything from property (not including the primary residence you live in) to art to an entire business is subject to CGT. But what happens when you sell a share?
Ordinarily, CGT is charged at 28 per cent on gains made from residential property and 20 per cent on any other chargeable assets.
If you’re a basic rate taxpayer (only after the taxable gains have been added to your yearly income), you’ll pay 18 per cent and 10 per cent respectively.
You don’t have to pay CGT at all if your gains in a year are under your tax-free allowance (£11,500 at the time of writing).
Shares, however, involve slightly more complicated calculations.
You don’t need to pay CGT if your investment is held in an ISA or Personal Equity Plan (PEP), on certain bonds, or units in a unit trust.
Likewise, you won’t be charged CGT on shares received as a gift from your husband, wife, or civil partner, or shares in employer Share Incentive Plans (SIPs).
Any other shares are eligible to be taxed. To work out how much you’ll pay, you need to calculate the difference between what you paid for your shares and what you sold them for.
Use the market value if you received them as a gift from someone other than a husband, wife, or civil partner, or if you sold them for less than they were worth.
If you’ve used a stockbroker to handle the buying and selling of your shares, you can deduct their costs from the total gain.
You might also be entitled to relief if you fall under one of these schemes.
If you’ve bought lots of shares in the same company at different prices, you’ll need to work out the average cost per share.
After deductions, the total gain will be taxed according to your income tax band, as specified above.
Our specialist team at JW Hinks have many years’ experience in helping individuals and businesses devise comprehensive plans for their future and can provide guidance in calculating future Capital Gains Tax liabilities.