Disposing of shares and CGT
Discussion
Morning all,
What can a person do to reduce/avoid the tax implications of selling shares?
As I understand it, you can sell up to circa £11k per year tax free, any more than that you have to pay tax at whatever tax band you are currently in for your wages (20%, 40% etc).
I currently have a cash ISA but believe you can get a shares ISA and somehow transfer and store/sell shares through one of those to reduce/avoid paying tax, could someone clarify this please? Do you have to close the cash ISA and open up a shares one?
If you wanted to sell, for example, £100k worth of shares, what is the best way to do this? If you can't sell them immediately without getting hammered for tax, is there a way to plan ahead to avoid tax if you wanted to sell them in a few years?
Cheers for any help
What can a person do to reduce/avoid the tax implications of selling shares?
As I understand it, you can sell up to circa £11k per year tax free, any more than that you have to pay tax at whatever tax band you are currently in for your wages (20%, 40% etc).
I currently have a cash ISA but believe you can get a shares ISA and somehow transfer and store/sell shares through one of those to reduce/avoid paying tax, could someone clarify this please? Do you have to close the cash ISA and open up a shares one?
If you wanted to sell, for example, £100k worth of shares, what is the best way to do this? If you can't sell them immediately without getting hammered for tax, is there a way to plan ahead to avoid tax if you wanted to sell them in a few years?
Cheers for any help
The CGT you pay will depend on your tax band but isn't the same rate - see:
https://www.gov.uk/capital-gains-tax/work-out-your...
I believe you can offset any losses against the gain, if you have anything you sold that lost value. Other than that I'm not aware of any ways to avoid it - best to buy the shares in an ISA if you can but I presume too late for that/too high a value.
https://www.gov.uk/capital-gains-tax/work-out-your...
I believe you can offset any losses against the gain, if you have anything you sold that lost value. Other than that I'm not aware of any ways to avoid it - best to buy the shares in an ISA if you can but I presume too late for that/too high a value.
As posted above, read this, it's very straightforward: https://www.gov.uk/capital-gains-tax/overview
You can make gains of up to ca. £11,000 per UK tax year without a charge to CGT (unless you're also claiming the remittance basis of taxation as a non-UK domicile). This is not the same as making proceeds of £11,000, unless you received the assets at nil cost.
Given the tax year ends on 5 April, you can make up to £11,000 of gains tax free up to 5 April 2016, and then another £11,100 on 6 April 2016.
If you're married and live with your spouse, you can gift assets to them at nil gain / nil cost, which they can then dispose of and use their own £11,000 annual CGT exemptions.
You can make gains of up to ca. £11,000 per UK tax year without a charge to CGT (unless you're also claiming the remittance basis of taxation as a non-UK domicile). This is not the same as making proceeds of £11,000, unless you received the assets at nil cost.
Given the tax year ends on 5 April, you can make up to £11,000 of gains tax free up to 5 April 2016, and then another £11,100 on 6 April 2016.
If you're married and live with your spouse, you can gift assets to them at nil gain / nil cost, which they can then dispose of and use their own £11,000 annual CGT exemptions.
Thanks for the replies chaps.
This is probably a stupid question, but if you buy shares in one company every month over a number of years, when you come to sell some how do you know what the original purchase price was?
eg if you sell 1000 shares today, how do you know if they were ones you bought ten years ago for £X, ones you bought 3 years ago for £Y, or ones you bought last week for £Z?
I'm sure I must be missing something obvious but I can't see it
This is probably a stupid question, but if you buy shares in one company every month over a number of years, when you come to sell some how do you know what the original purchase price was?
eg if you sell 1000 shares today, how do you know if they were ones you bought ten years ago for £X, ones you bought 3 years ago for £Y, or ones you bought last week for £Z?
I'm sure I must be missing something obvious but I can't see it
When tranches of shares which had been acquired over time are eventually sold, Capital Gains Tax has had a number of different views as to what particular shares have been disposed of. They've flip flopped a couple of times over the history of CGT.
ACCA gives the following example of what happens now -
What are the rules?
The capital gains tax regime underwent a substantial revamp in 2008 and the share identification rules formed part of the reforms. The rules are therefore different for disposals occurring on or after 6 April 2008 than they were previously. This article just looks at the rules as they have applied since 6 April 2008.
Disposals of shares on or after 6 April 2008 are to be identified with acquisitions by the same person of shares of the same class in the same company in the following order:
acquisitions on the same day as the disposal;
acquisitions within 30 days after the day of disposal (thus countering 'bed and breakfasting');
shares comprised in the 'section 104 holding' (see below);
if the shares disposed of are still not exhausted, shares acquired subsequent to the disposal (and beyond the above-mentioned 30-day period).
In the above list, 1, 2 and 4 are easy to understand but what about number 3, the section 104 holding?
Section 104 holding
Taxation of Chargeable Gains Act (TCGA) 1992, s104 tells us that:
'Any number of securities of the same class acquired by the same person in the same capacity shall for the purposes of this Act (subject to express provision to the contrary) be regarded as indistinguishable parts of a single asset growing or diminishing on the occasions on which additional securities of the same class are acquired or some of the securities of that class are disposed of.'
This effectively means that all shares, apart from those in 1, 2 and 4 above, are pooled and treated as a single asset. When a proportion of the shares held within the pool are sold, the value of the pool of share is apportioned to determine the base cost of the shares being sold.
Any shares which were held at 1 April 1982 are subject to the 'general re-basing rule', as prescribed by TCGA 1992, s35(4). This means that, for capital gains tax purposes, the shares are treated as having been acquired at their market value as at 1 April 1982 and the actual cost becomes irrelevant. There is an exception to this rule if the client has made a global election by 6 April 1990 for actual cost to apply, in which case, original cost will normally apply.
It should be remembered that indexation no longer applies to disposals made by individuals and trusts.
ACCA gives the following example of what happens now -
What are the rules?
The capital gains tax regime underwent a substantial revamp in 2008 and the share identification rules formed part of the reforms. The rules are therefore different for disposals occurring on or after 6 April 2008 than they were previously. This article just looks at the rules as they have applied since 6 April 2008.
Disposals of shares on or after 6 April 2008 are to be identified with acquisitions by the same person of shares of the same class in the same company in the following order:
acquisitions on the same day as the disposal;
acquisitions within 30 days after the day of disposal (thus countering 'bed and breakfasting');
shares comprised in the 'section 104 holding' (see below);
if the shares disposed of are still not exhausted, shares acquired subsequent to the disposal (and beyond the above-mentioned 30-day period).
In the above list, 1, 2 and 4 are easy to understand but what about number 3, the section 104 holding?
Section 104 holding
Taxation of Chargeable Gains Act (TCGA) 1992, s104 tells us that:
'Any number of securities of the same class acquired by the same person in the same capacity shall for the purposes of this Act (subject to express provision to the contrary) be regarded as indistinguishable parts of a single asset growing or diminishing on the occasions on which additional securities of the same class are acquired or some of the securities of that class are disposed of.'
This effectively means that all shares, apart from those in 1, 2 and 4 above, are pooled and treated as a single asset. When a proportion of the shares held within the pool are sold, the value of the pool of share is apportioned to determine the base cost of the shares being sold.
Any shares which were held at 1 April 1982 are subject to the 'general re-basing rule', as prescribed by TCGA 1992, s35(4). This means that, for capital gains tax purposes, the shares are treated as having been acquired at their market value as at 1 April 1982 and the actual cost becomes irrelevant. There is an exception to this rule if the client has made a global election by 6 April 1990 for actual cost to apply, in which case, original cost will normally apply.
It should be remembered that indexation no longer applies to disposals made by individuals and trusts.
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