If you make a gain when selling shares or other investments, you may be liable to pay Capital Gains Tax. Your tax liability is dependent on whether your total gains exceed your Capital Gains Tax allowance for the year.
Common share and investment types that tax may be payable on include: shares that aren’t in an ISA or PEP; units that are in a unit trust; and certain types of bonds.
When Tax Isn’t Payable
If you gift shares to your spouse or civil partner, a Capital Gains Tax liability does not usually arise. Additionally, if you give away shares to charity, you will not usually be required to pay tax.
Other circumstances where a Capital Gains Tax liability doesn’t normally arise include when you sell shares that you’ve put into an ISA or PEP. Furthermore, the first £50,000 worth of employee shareholder shares are free from tax; as are shares in Share Incentive Plans.
Government gilts such as Premium Bonds are free from tax; as are Qualifying Corporate Bonds.
When Tax Is Payable
You will be required to work out your gain in order to find out whether you are liable to pay Capital Gains Tax. Your gain is the difference between what you paid for the shares and the amount you sold them for.
In some situations, the market value should be used to determine your gain. This is used if you gave them away as a gift (not to a spouse, civil partner or charity) or if you sold them for less than there worth. You should also use the market value if you inherited the shares and do not know the Inheritance Tax value; or if you owned them previous to April 1982. Shares acquired through certain Employee Share Schemes may also be required to use the market value to determine your gain.
Reducing Capital Gains Tax Liability
Certain costs of buying or selling your shares can be deduced from your gain. These include selling fees, purchasing fees and Stamp Duty Reserve Tax.
You may also be eligible to reduce or delay your tax liability through various tax reliefs. There are a number of reliefs available including Entrepreneurs Relief; Gift Hold-Over Relief; Enterprise Investment Scheme; Seed Enterprise Investment Scheme; and Rollover Relief.
If you’re eligible for Entrepreneurs Relief, you can pay tax at the reduced rate of 10% if you sell shares in a company where you have at least a 5% shareholding and voting rights.
Gift Hold-Over Relief
If you give away your shares, you may be able to claim Gift Hold-Over Relief. You will pay no Capital Gains Tax under this relief.
Enterprise Investment Scheme
This relief delays or reduces your tax liability if you use your gain to purchase unlisted shares in an approved company.
Seed Enterprise Investment Scheme
If you use a gain to buy new shares in a company approved for SEIS, you can claim a tax-free amount of up to £100,000.
When selling unlisted shares to the trustees of a Share Incentive Plan (and use the proceeds to buy new assets) you can delay your Capital Gains Tax payment.