Investing in shares can be a rewarding way to build wealth, but it’s essential to understand the tax implications. Whether you’re buying and selling shares for a short-term profit or holding them for the long haul, you may be liable for Capital Gains Tax (CGT). In this guide, we’ll explain what Capital Gains Tax is, how it applies to shares, and what you need to know to stay compliant with HMRC regulations while minimizing your tax liability.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the profit made from selling an asset, such as shares, property, or other investments. You’re taxed on the gain, which is the difference between the price you paid for the asset and the price you sold it for. In the case of shares, this applies when you sell them for more than you initially paid.

Key Points About Capital Gains Tax:

• CGT is only payable on the profit you make, not the total sale price.
• Personal allowances and exemptions may reduce the amount of tax you owe.
• CGT applies to a wide range of assets, including shares, property (that is not your main home), and other valuable items.

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Do You Need to Pay Tax on Shares?

If you sell shares and make a profit, you may be liable for Capital Gains Tax. However, not everyone who sells shares will need to pay tax. Here’s when you might need to consider CGT:

1. Selling Shares for a Profit

If you sell shares for more than you bought them, and your gains exceed your annual tax-free allowance, you’ll need to pay tax on the profits.

2. Transferring Shares

If you transfer shares as a gift to someone other than your spouse or civil partner, this may be considered a disposal for tax purposes, and CGT may apply.

3. Receiving Dividends

If you receive dividends from your shares, you may also need to pay Dividend Tax. Dividends are treated separately from capital gains, but both forms of income may be taxable depending on your overall income.

Capital Gains Tax Allowance for 2023/24

Every taxpayer in the UK is entitled to an annual CGT allowance, which allows you to make a certain amount of profit before you have to pay tax. For the 2023/24 tax year, the CGT allowance is £6,000.

If your total gains from selling shares and other assets in a tax year are below this allowance, you won’t need to pay any CGT. If your gains exceed the allowance, you’ll only be taxed on the amount above the threshold.

Example:

If you make £10,000 in profit from selling shares, and your CGT allowance is £6,000, you’ll only be taxed on the remaining £4,000.

What are the Capital Gains Tax Rates?

The CGT rates for shares depend on your overall income and whether you’re a basic-rate or higher-rate taxpayer.

• Basic-rate taxpayers: You’ll pay 10% CGT on your gains above the allowance.
• Higher and additional-rate taxpayers: You’ll pay 20% CGT on your gains above the allowance.

Example:

If you’re a higher-rate taxpayer and make a gain of £8,000 from selling shares, with a £6,000 allowance, you’ll be taxed 20% on the £2,000 gain, resulting in £400 of CGT.

Tax Reliefs and Exemptions

There are several ways to reduce your Capital Gains Tax liability when selling shares. Some common tax reliefs and exemptions include:

1. ISA Investments

Any profits you make from shares held within an Individual Savings Account (ISA) are completely free from Capital Gains Tax. ISAs are a popular choice for UK investors because they allow tax-efficient growth.

2. Gift to Spouse or Civil Partner

Transferring shares to your spouse or civil partner is considered exempt from CGT. This can be a useful strategy for reducing your overall tax liability, particularly if your spouse is in a lower tax bracket.

3. Bed and Spouse Transactions

This involves selling shares and repurchasing them in your spouse’s name to take advantage of their CGT allowance.

4. EIS and SEIS Investments

Investments in qualifying companies under the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) may be exempt from CGT or eligible for deferral relief.

5. Using Losses to Offset Gains

If you’ve made a loss on the sale of shares, you can use that loss to offset gains made in the same or future tax years. This can reduce your overall CGT liability.

How to Calculate Your CGT on Shares

To calculate the amount of CGT you owe on shares, follow these steps:

1. Determine your gain: Subtract the purchase price of the shares (including any associated costs, such as broker fees) from the sale price to calculate your gain.
2. Deduct your CGT allowance: If your total gains for the year exceed the CGT allowance (£6,000 for 2023/24), subtract the allowance from your total gain.
3. Apply the appropriate tax rate: Depending on whether you’re a basic-rate or higher-rate taxpayer, apply the relevant CGT rate (10% or 20%) to the remaining gain.

Example:

• Purchase price of shares: £15,000
• Sale price of shares: £25,000
• Total gain: £10,000
• CGT allowance: £6,000
• Taxable gain: £4,000
• CGT rate: 10% (basic-rate taxpayer)

In this case, the CGT payable would be 10% of £4,000, which equals £400.

Reporting and Paying Capital Gains Tax

If you owe CGT on shares, you’ll need to report the gain to HMRC through a Self Assessment tax return. You must also pay any tax owed by the following deadlines:

• 31st January: Deadline for filing your Self Assessment tax return and paying the CGT owed for the previous tax year.
• 5th October: Deadline for registering for Self Assessment if you haven’t previously done so.

How CANGAF Accountants Can Help

Navigating the complexities of Capital Gains Tax on shares can be challenging, but you don’t have to do it alone. At CANGAF Accountants, we specialize in helping individuals and businesses manage their tax obligations efficiently. Whether you need help calculating your CGT liability, claiming reliefs, or filing your Self Assessment tax return, our expert team is here to guide you through the process.

With CANGAF Accountants, you’ll receive personalized advice tailored to your unique financial situation, ensuring that you maximize tax savings while staying compliant with HMRC regulations.

Contact CANGAF Accountants Today

• Address: 235 Tonge Moor Road, Bolton BL2 2HR
• Email: info@cangafltd.com
• Phone: 01204 859315
• Website: www.cangafltd.com

Let us take care of your tax matters so you can focus on what matters most – growing your wealth and making informed investment decisions.