Do You Pay Tax When You Sell Shares in the UK?
Investing in shares can be a profitable way to grow your wealth, but what happens when you decide to sell? In the UK, the sale of shares often triggers a tax obligation called Capital Gains Tax (CGT). Understanding the tax implications of selling shares is essential to avoid surprises and ensure you're following legal guidelines. At TreyBridge Accountants, we're here to guide you through the process.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax on the profit you make when you sell (or 'dispose of') an asset that's increased in value, such as shares. The tax is on the gain (the difference between what you paid for the shares and the amount you sold them for), not the total sale price.
When Do You Pay Capital Gains Tax on Shares?
You may need to pay CGT if your total gains for the tax year exceed your annual tax-free allowance, known as the CGT annual exemption. For the 2023/2024 tax year, the annual exemption is £6,000 for individuals. If your gains from selling shares and other assets are below this threshold, you won't owe any CGT.
However, if your gains exceed this allowance, you'll need to pay CGT at the applicable rate.
What are the Current CGT Rates for Shares?
The rate of CGT you pay depends on your taxable income. For gains above the annual exemption:
Basic rate taxpayers: Pay 10% CGT on gains.
Higher or additional rate taxpayers: Pay 20% CGT on gains.
If you're unsure of your tax bracket or how much CGT you owe, TreyBridge Accountants can help you determine the correct amount and ensure you're fully compliant with HMRC regulations.
Exemptions and Reliefs for Shares
While most sales of shares are subject to CGT, there are a few exemptions and reliefs available:
1. Shares in an ISA or Pension: If your shares are held in an Individual Savings Account (ISA) or pension fund, you won't pay CGT when you sell them. This makes ISAs a tax-efficient way to invest in shares.
2. Gift of Shares to Your Spouse: You can transfer shares to your spouse or civil partner without triggering a CGT charge. This can be useful for spreading gains between both parties to make the most of your combined allowances.
3. Entrepreneurs' Relief (Business Asset Disposal Relief): If you're selling shares in your own company and meet specific criteria, you may qualify for Entrepreneurs' Relief, which reduces the CGT rate to 10% on gains of up to £1 million.
How to Calculate Your Capital Gains on Shares
To calculate the capital gain from selling your shares, follow these steps:
1. Determine the Sale Proceeds: This is the amount you received from selling the shares.
2. Subtract the Purchase Price: This is the price you paid to acquire the shares, including any associated costs like broker fees.
3. Deduct Allowable Expenses: You can subtract costs directly related to buying or selling shares, such as brokerage fees and commissions.
4. Apply the CGT Allowance: If the resulting gain is above your annual CGT exemption, you'll need to pay tax on the amount that exceeds the threshold.
If you're unsure of the calculations, our experienced team at TreyBridge Accountants can handle it for you, ensuring accuracy and efficiency in your tax planning.
Filing and Paying CGT on Shares
If you owe CGT after selling shares, you must report the gain to HMRC. This can be done through a Self Assessment tax return or by using the "real-time" Capital Gains Tax service if you want to report the gain before the end of the tax year.
It’s important to report and pay any CGT owed by the 31st January following the tax year in which you made the gain. Late payments may result in penalties or interest, so timely action is key.
Selling shares can be a lucrative decision, but it’s important to consider the tax implications. Whether you’re selling shares held in an ISA, a personal investment portfolio, or your own company, TreyBridge Accountants is here to help you navigate the tax landscape and make informed decisions. If you're unsure of your CGT liability or need help with tax planning, contact our expert team today for professional advice.
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