TAX ON SELLING SHARES INFORMATION OF INTEREST
Tax when you sell shares
Capital Gains Tax allowances
You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount).
The Capital Gains tax-free allowance is:
£12,000
£6,000 for trusts
You can see tax-free allowances for previous years.
You may also be able to reduce your tax bill by deducting losses or claiming reliefs - this depends on the asset.
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What you do not pay it on
You do not pay Capital Gains Tax on certain assets, including any gains you make from:
ISAs or PEPs
UK government gilts and Premium Bonds
betting, lottery or pools winnings
When you do not pay it
You do not usually need to pay tax if you give shares as a gift to your husband, wife, civil partner or a charity.
You also do not pay Capital Gains Tax when you dispose of:
shares you’ve put into an ISA or PEP
shares in employer Share Incentive Plans (SIPs)
UK government gilts (including Premium Bonds)
Qualifying Corporate Bonds
employee shareholder shares - depending on when you got them
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What you pay it on
You may have to pay Capital Gains Tax if you make a profit (‘gain’) when you sell (or ‘dispose of’) shares or other investments.
Shares and investments you may need to pay tax on include:
shares that are not in an ISA or PEP
units in a unit trust
certain bonds (not including Premium Bonds and Qualifying Corporate Bonds)
You’ll need to work out your gain to find out whether you need to pay tax. This will depend on if your total gains are above your Capital Gains Tax allowance for the tax year.
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CGT rates on investments The rate of capital gains tax you pay depends on your income tax band. Basic-rate taxpayers pay 10% capital gains tax. Higher and additional-rate taxpayers pay 20% capital gains tax. In the 2019-20 tax year, you can make £12,000 in capital gains before you have to pay any tax - and couples can pool their allowance. In 2018-19, you were be able to make £11,700 gains before tax. Find out more: tax-free income and allowances How do I calculate my CGT bill? Special rules apply to shares and unit trusts. There is no capital gains tax payable on shares or units held in an Isa or pension. For all other shares, you'll pay capital gains tax on any profits from a sale. If you acquire identical shares or units at different times, HMRC assumes you dispose of them in a strict order. In this case, you need to know which shares or units you are selling so that you can work out any tax bill using the correct initial value. To solve this problem, the tax rules say you must match the shares or units you are selling to the ones you bought in this order: shares or units you buy on the same day shares or units you buy within the next 30 days the rest of your shares or units – these are treated as being held in a pool and acquired at their average price. You can get an HMRC help sheet, called 'HS284 Shares and capital gains tax' from the HMRC website. Save tax with a Bed and Isa The easiest way to sidestep paying capital gains tax on your investments is to make sure they are in an Isa, where any investment growth will be free from CGT, and any income, such as interest or dividends will be free from income tax. You're allowed to save or invest up to £20,000 in an Isa each year. If you already hold investments, you can't transfer them into your Isa. Instead you can opt to sell them, transfer the money to your Isa, and use that cash to buy the investments back - a pair of deals known as a a Bed and Isa. Bear in mind there can be charges involved with buying and selling, and you'll generally have to pay slightly more to buy an asset than you'll get when selling it. There's also a chance that the price will go up between your selling and buying it back, which could cost you. But if the price falls that could work to your advantage. However, many investment platforms have processes that can simplify, speed up, or reduce the cost of a Bed and Isa, so speak to your provider before you begin the process.
Read more:
https://www.which.co.uk/...-on-shares-ambbh8b4kuxt - Which?
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MORE INFO ON TAX
Know what you need to pay
The rate of CGT depends on whether you're a Basic Rate or Higher Rate or Additional Rate taxpayer
For Higher Rate or Additional Rate taxpayers this is simple: it's 28% on your gains from residential property or 20% on your gains from other chargeable assets.
Unfortunately for Basic Rate taxpayers, the situation is a little more complicated:
Start by working out your annual income, minus the Personal Allowance (currently £12,500) and any other tax reliefs you receive.
Take that figure and add your capital gains from the year.
Then reduce that number by the Capital Gains Tax allowance (currently £12,000).
Is the figure you come out with less than £50,000? If so, you'll pay 10% tax on your gains or 18% on residential property.
Any amount above £50,000 will be charged at 20% on gains and 28% for residential property.
List of tax codes: check you're on the right UK tax code for 2019/20
3. Spread gains over tax years
Instead of selling, say, a whole heap of shares all in one go, you can split your sales over two or more tax years.
For example, you could sell some shares in 2019/20 and then sell more on or after 6 April 2020. By doing so, you can take advantage of two years’ CGT allowances, currently worth a total of £24,000.
Pay less tax: 8 tax breaks and boosts you have to ask for
4. Offset losses against gains
When calculating your CGT bill, you deduct capital losses from capital gains in order to arrive at your net gain. For example, a gain of £25,000 minus a loss of £10,000 produces a net gain of £15,000.
Therefore, by crystallising losses in the same tax year as gains, you can bring down your tax bill. Also, in most cases, losses made up to four years ago can be offset against current gains.
You can't claim a loss for selling an asset to a 'connected person', such as a family member or business partner.
You can offset losses against your gains (image: Shutterstock)
5. Gift assets to your spouse
Transfer between spouses is currently exempt from CGT. So by gifting assets to your spouse (or Civil Partner), you take advantage of both CGT tax-free allowances amounting to £24,000.
Alternately, you could transfer partial ownership to a spouse - useful if your spouse is on a lower tax band then you.
Marriage Allowance: how to get a £900 tax break
6. Bed your spouse
No saucy remarks, please!
Another way married couples and Civil Partners can avoid CGT is by one spouse or Civil Partner selling assets to crystallise a gain, while the other spouse buys them back.
This ‘bed and spouse’ technique to crystallise gains doesn’t work for outright gifts, as these do not attract CGT. Instead, one spouse must, say, sell shares to a broker while the other simultaneously buys them back from the same.
Your spouse can help reduce your tax bill (image: Shutterstock)
7. Get an ISA
Over 19 million Brits use a popular tax shelter known as an ISA (Individual Savings Account) to keep income and capital gains safe from the taxman’s grasp.
In this tax year, investors can put up to £20,000 into an ISA of which all can be in cash or stocks and shares, or a combination of the two.
Gains made inside an ISA are free from CGT, so an ISA is one of the best defences against paying needless tax. Over many years, some investors have built up six-figure sums inside ISAs, all protected from HM Revenue & Customs.
Find a Stocks and Shares ISA with low fees: compare and apply for platforms here
8. Bed and ISA
As with the ‘bed and spouse’ technique, ‘bed and ISA’ involves selling assets (such as shares, investment funds and bonds) to produce a capital gain and then immediately buying back the same assets inside the safety of an ISA.
Thus, you could sell directly held assets worth up to £20,000 and then use the proceeds of this sale to fund a near-identical purchase (after dealing charges) inside an ISA. This enables all future gains on this asset to avoid CGT.
Stocks & Shares ISA: how does it work, 2019/20 limit, how to invest, fees, cheapest providers and more
9. Bed and SIPP
Another sell-and-buy-back technique is ‘bed and SIPP’ which involves – you guessed it – selling assets and then buying them back inside the shelter of a pension known as a Self-Invested Personal Pension (SIPP).
All income and gains made inside a SIPP are tax-free, making it a very popular option for saving towards retirement.