Capital Gains tax on shares and investments. When you sell shares, you will either make a profit or a loss. Profits made are classed as a capital gain.
There are some exemptions where capital gains tax (CGT) is not liable:
- Individual savings accounts (Isa’s)
- Venture Capital Trusts
- Enterprise Investment schemes
- Gifts to Charity
- Government Securities
- Corporate Bonds of a qualifying status
- Transfers of shares between spouses or partners in a civil partnership
- betting, lottery or pools winnings
Apart from the exemptions, sales or disposal of the shares will normally be classed as a potential capital gain.
Each person has an allowance each year they can use to reduce the amount of CGT they might pay. If your total gains for the tax year are below the “annual exempt allowance” you will not have to pay any tax.
If your gains are over the allowance then tax would be due on the balance. It might also be possible to offset any losses from previous tax years. If you do not use your annual exempt allowance for CGT in a tax year, then you lose it and you cannot carry it forward to another year. The CGT tax rate payable will depend on your total income and any gains made for the tax year in question.
The government changed the way Capital Gains were taxed from April 2015. The amount of tax due will depend whether you are a basic or higher rate taxpayer.
Basic Rate Taxpayers
If you are a basic rate taxpayer if the gain minus any allowance one added to your income then the rate of tax is 10% or (18% if the gain is in relation to residential property). For gains over the basic rate income tax band you will pay tax at 20% and 28% for residential property over the basic rate tax band.
Higher Rate Taxpayers
Gains are higher rate taxpayers are 20% and 28% for residential property.
Any gains you make need to be reported to HMRC via your self-assessment tax return. If you do not complete a self-assessment return it is still your responsibility to advice HMRC of the gain and request a return. It is therefore important that you keep any relevant paperwork, from the purchase and sale of an asset so that you can accurately work out how much tax is due.