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Tax on Sale of Shares

By: J.A.J Aaronson - Updated: 20 Nov 2014 | comments*Discuss
Tax Sale Shares Capital Gains Cgt Annual

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

When calculating whether or not CGT will be payable at the end of each tax year, you must work out your net capital gains. This requires you to take the sum of your total gains and subtract from that a number of mitigating factors. The most important of these is the costs incurred by the initial acquisition, and eventual disposal of the assets. In the case of shares, this is most likely to consist of brokers' fees. You should also take into account any relief that is available to you; some of the relief that you qualify for will have already been deducted automatically, while the rest you will be expected to apply for yourself.

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

Once you have calculated all of the deductions that can be made from your total gains, you must then factor in the Annual Exempt Amount (AEA). This is a non-taxable allowance below which capital gains are not taxed. The AEA is set at £10,600 for the 2011-12 tax year.

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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When I inherited my aunts estate it included £97,000 worth of shares.I had to pay inheritance tax as I was over the threshold.When I actually got the share certificates (2008) they had dropped £20,000 in value. I wouldn't have had to pay Inheritance tax if they had been £77,000! I want to sell them all now value £110,000. Will I have to pay CGT and how much approximately will this be?
Pip - 20-Nov-14 @ 10:25 AM
My husband has recently sold the family business, after 4 generations have run it. The shares in the business were transfered/gifted to him from his grandfather and father in the 1970s and 1980s. We believe that CGT was deferred, but cannot find any paperwork or tax return information for that far back. Some were then willed to him on the death of his parents in the 1990s. There has never been a market value put to the shares, other than 'guesses' evidenced in a couple of letters from the accountants involved back then, varying between £5 and £26 (then down to £6). There was one valuation of the business approximately 20 years ago (which strangely enough is quite close to what it was sold for in December 2012). Ordinary shares were initially £1 each, with preference shares @ 6% above them - that was in 1929. How do we now arrive at the capital gain so that we ensure we pay the correct tax due? We are aware of the reliefs that are deductible, and the sale value of the shares last December. it is what to base the shares at, as being their 'market value' when they were received, so that we can determine the difference. any advice please?
Hil - 13-Jul-13 @ 2:26 PM
I have £7.550 in one lot of shares and I am a non tax payer, will I have to pay any taxes on them if I sell.
Sandy - 13-Jul-13 @ 10:37 AM
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