Tax on Sale of Shares

By: J.A.J Aaronson - Updated: 20 Nov 2014 | *Discuss

 

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When an individual disposes of assets they are liable to pay a tax if they make gains over a certain threshold. The duty that they may have to pay is known as Capital Gains Tax (CGT), and this applies particularly to the sale of shares. Not everyone who disposes of shares will be required to pay CGT. Rather, this will depend on your total capital gains during the tax year in question. You will not, therefore, necessarily pay CGT on every transaction in which you sell shares. Instead, all transactions that are liable for CGT (including the disposal of assets other than shares) are taken into account.

Calculating Deductions

You may also be able to factor in a number of 'allowable losses' that have been suffered as a result of the disposal of other assets, with particular reference to assets, which now have only negligible value. This is covered in more detail in the article entitled Negligible Value Claim Relief on this site. It should also be remembered that the transfer of shares between an individual and their spouse or civil partner are always free from CGT. However, if the recipient then sells the shares they will be liable for the tax based on the cost to the first individual. If you give shares away to anyone else, however, you will need to pay CGT on their value at the time that you dispose of them.

Annual Exempt Amount

Shares pose a particular problem when calculating CGT. This is because each share is not individually identifiable. For example, an investor could buy shares in a company on one day at £1 per share, and more shares the next day at £5 per share. The problem, therefore, is calculating the relative gain or loss when the shares are sold.

In order to tackle this, the government has devised a set of rules regarding the way in which shares are 'grouped'. The most important part of these rules says that any shares bought on the same day should be grouped together for the sake of CGT calculations. However, these rules are complex and professional advice should always be sought in these circumstances.

The amount that you will be required to pay in CGT will depend on your total annual income. Your taxable gains are added to your other income, and form a separate 'top part' of your total income. For the 2011-12 tax year, if your total gains chargeable to CGT are less than £35,000 you will pay 18%; if they are over £35,000 you will pay 28%.

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