Pixel

How Do You Pay Capital Gains Tax on Shares? All You Need to Know

Gary Green
Gary Green
February 11, 2021

A capital gain is the profit you make when you sell an asset for more than you paid for it. If you make a capital gain on the sale of shares, then subject to the exceptions set out below you will usually be liable to pay Capital Gains Tax (CGT).

Your gain is usually the difference between what you paid for your shares and what you sold them for. In some situations, the seller is required to use the market value instead, for example, if the shares were sold for less than they were worth.

CGT is normally charged at a simple flat rate of 20% and this applies to most chargeable gains made by individuals. If basic rate taxpayers only make a small capital gain, they may only be subject to CGT at a reduced rate of 10%. If the basic rate taxpayer makes a chargeable gain that pushes their taxable income into the higher rate threshold, then they will pay some CGT at both 10% and 20% on the relevant amounts. A higher rate of CGT applies (18% and 28%) to gains on the disposal of residential property (apart from a principal private residence).

There are annual limits that allow taxpayers to make a certain amount of tax free capital gains each year. The annual CGT exemption for individuals is £12,300 for 2020-21. Spouses and civil partners are taxed independently of each other and therefore each benefit from a separate exemption. Spouses and civil partners do not usually have to pay CGT on the transfer of assets (including shares) to their spouse or civil partner.

Your liability to pay CGT on the sale of shares is based on the date the shares were sold. This is the date the bargain actually took place and not the date of the contract note or the date of settlement.

The usual due date for paying any CGT to HMRC is the 31 January, see below for residential property sales’ reporting date, following the end of the tax year in which a capital gain was made. This means that CGT will be payable for any gains made during 2020-21 on or before 31 January 2022.

Taxpayers who are planning to make a gain towards the end of a tax year could benefit by waiting until the start of the new tax year to crystallise a gain. For example, CGT on shares sold on the 5 April 2021 would be due by 31 January 2022 but if the shares were sold at the beginning of the following tax year i.e. on or after 6 April 2021 then CGT would not be due until 31 January 2023.

The usual way to report a gain is to complete the relevant sections of the Self-Assessment tax return in the tax year after the gain was made. There are separate rules, that came into effect from 6 April 2020, for reporting and paying CGT on the sale of a residential property within 30 days of the completion of the transaction.

If you complete a Self-Assessment tax return then you are required to notify HMRC of any taxable gains using the capital gains pages of the return. If you do not automatically receive a tax return each year you must still notify HMRC that you have a CGT liability.

The law requires you to notify HMRC by 5 October following the end of the relevant tax year. HMRC will then issue a tax return and this must be completed within 3 months and any tax paid by the same deadline.  Tax geared penalties and interest are charged when CGT is paid late. In most cases, no declaration of taxable gains is required where total gains in a tax year are less than the annual tax-free allowance.

HMRC also offers a 'real time' CGT service that allows taxpayers to report any gains and pay straight away. Using this service would obviously mean paying any CGT due before the official deadline so we would assume that the use of this service would only be appealing under very limited circumstances.

HMRC’s guidance is clear that you can deduct certain costs of buying or selling your shares from your gain. These include certain fees that were incurred, for example, stockbrokers’ fees and Stamp Duty Reserve Tax (SDRT) charged when you bought the shares.

Sometimes you may sell an asset for less than you paid for it. In such circumstances, you would make a capital loss. You can typically deduct capital losses from capital gains made in the same or future years.  In certain circumstances, like having invested under SEIS or EIS you may be able to convert a capital loss into an income tax loss.

Generally, if the asset would have been liable to CGT had a gain taken place then the loss should be an allowable deduction. You may be able to reduce or delay the amount of CGT you have to pay if you are eligible for various tax reliefs such as Business Asset Disposal Relief.

If you have any questions about the issues raised in this article, we at Key Business Consultants can help. Get in touch with us today or call us directly on 02037 282 848.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
October 13, 2021
What is the Restart Grant and How Do I Apply?

The COVID-19 global pandemic had a detrimental effect on many businesses, but there were some sectors...

September 27, 2021
Choosing The Correct VAT Scheme For Your Business

Choosing the right VAT scheme is an important step for small business owners and can have a considerable...

September 21, 2021
How to Claim EIS Income Tax Relief in 2021

If you need to know how to claim EIS income tax relief and enjoy what is...

September 2, 2021
Recovery Loan Scheme - What Is It and How Do I Apply?

As businesses seek to re-open and recover from the global pandemic, there are various forms of...

August 16, 2021
The Super-Deduction Scheme - How Does It Work?

You may have heard the term 'super-deduction' recently and wondered if you could be affected by...

August 12, 2021
The Tax Benefits of Non-Domiciled Status for UK Residents

Having a Non-Domiciled Status if you reside in the United Kingdom can have great benefits for...

July 9, 2021
Stamp Duty Land Tax (SDLT) Surcharge for Non-UK Residents

Stamp Duty Land Tax (SDLT) rates have changed again for non-residents buying a home in England...

July 7, 2021
How Is Cryptocurrency Taxed & Do I Need to Fill A Self-Assessment?

Cryptocurrency may live online with no government control or borders, but if you are in the...

July 5, 2021
Venture Capital Schemes: Tax Relief Guide For Investors

When it comes to finding out what tax relief is available for investors using a venture...

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2021 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram