Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
What do you have to pay Capital Gains Tax on?
If you make a profit when you sell (or dispose of) any shares or other investments, you might have to pay Capital Gains Tax. This doesn’t apply to all shares, but if you sell any of the following shares or investments, you might have to pay the tax on any profits you make:
Shares that aren’t part of a PEP or ISA;
Units in a unit trust;
Certain types of bonds (but not Premium Bonds or Qualifying Capital Bonds).
Whether you will have to pay tax on the sale of these shares will depend on whether you have made a gain (profit) on them. You will need to work out that gain and then if your total gains for that tax year (including any other gains that might be liable to Capital Gains Tax) are above the Capital Gains Tax Allowance, then you will have to pay tax on the gains that are above that threshold.
When don’t you have to pay it?
You don’t usually pay Capital Gains Tax if you give the shares to your husband, wife, civil partner or a charity as a gift.
You also don’t have to pay Capital Gains Tax when you sell any of the following:
Shares in employer Share Incentive Plans (SIPs);
UK government gilts (including Premium Bonds);
Employee shareholder shares (depending on when you got those shares);
Qualifying Corporate Bonds;
Shares that you have put into a PEP or ISA.
How do you work out your gain?
You need to know what your gain is before you can work out whether you will have to pay any Capital Gains Tax. HMRC usually consider your gain to be the difference between how much you paid for the shares originally and how much you have sold them for.
There are some instances in which HMRC expect you to use the market value instead of the purchase value. You should use the market value if any of the following apply:
You gave them away as a gift to someone other than your husband, wife, civil partner or a charity;
You sold then for less than they were worth;
You owned them before April 1982;
You acquired them through certain Employee Shares Schemes;
You inherited them and you don’t know what the Inheritance Tax Value of them is.
It is also possible that they were sold or given to you by someone who claimed Gift Hold-Over Relief, in which case you need to use the amount that person paid for the shares to work out your gain – if you paid less than they were worth, you need to use the amount you paid for them.
What if you are selling under special circumstances?
There are a few circumstances in which HMRC will use special rules to work out the cost of your shares if you sell them. These circumstances are:
If you bought your shares through an investment club;
If you bought shares after a company merger or takeover;
If the shares were bought as part of an Employee Share Scheme.
There are also different rules if the shares or investments were jointly owned. If they were owned jointly with others, you need to work out the gain for the portion you own rather than the value of the whole number of shares.
However, if they were bought as part of an investment club, the rules are different – because the club buys back your shares if you leave the club, you need to include all of the gains and losses you made through the club.
We know that this sounds very complicated and sometimes expert advice is the only way to go – our team of tax preparation specialists can help you to calculate just how much Capital Gains Tax you owe and how much tax relief you can claim, so call us on 0330 122 9972 and let us make life simple for you.
What do you do after you have calculated your gain?
Next you need to deduct any costs and then apply any reliefs you might be entitled to claim. That will give you the net gain which you need to use to work out whether you need to pay any Capital Gains Tax.
There are certain costs you are entitled to deduct from your gain (profit) and these include any fees you might have paid, such as stockbrokers’ fees and any Stamp Duty Reserve Tax (SDRT) you paid when you originally bought the shares. If you’re not sure whether you can deduct a cost, you can contact HMRC or a tax preparation specialist.
If you are eligible for any tax relief, apply those to your gain – this may help you to reduce your gain or delay paying Capital Gains Tax. We will go into the different types of tax relief you might be entitled to later in this guide.
How do you work out whether you need to pay?
Once you know what your actual gain is, you can work out whether you need to report that gain to HMRC and pay Capital Gains Tax on it. HMRC have an online calculator that can help you work out your Capital Gains Tax liability, but you can only use it if the following circumstances apply:
If the shares were the same type, acquired in the same company on the same date.
If you sold the shares at the same time.
You can’t use the calculator if any of the following apply:
You sold other shares during that tax year;
You sold any other chargeable assets in that tax year, such as valuable antiques or buy-to-let property;
You are claiming any kind of tax relief;
You are acting as a company, trustee, agent or personal representative.
Because the rules can be so complicated, it is often in your best interests to use a tax preparation specialist to help you calculate your Capital Gains Tax liability – our expert team are always on hand to take the hassle out of your taxes so call us on 0330 122 9972.
What happens if you need to report a loss?
HMRC has different rules if you are reporting a loss on the sale of your shares. You can use these losses to reduce your overall Capital Gains Tax liability. You can also claim losses on any shares you own that become worthless or practically worthless because the company has gone into liquidation, for example.
How do you work out your gain if you are selling shares in the same company that you bought at different times?
Most of the above advice relates to selling shares in the same company that you bought at the same time for the same price. However, if you are selling shares in that same company, but that you have bought at different times for more than one purchase price, you have to work out your profit differently. For this, you will usually have to work out the average price you paid for them.
For example, you buy 200 shares at £1 (total cost £200) and then another 200 shares, this time at £1.50 (total cost £300) so you have 400 shares in total, each with an average cost of £1.25. If you sell 150 of these shares, the cost for your tax calculations would be £187.50 (150 x £1.25) and you would then take this away from what you sold the shares for to work out your gain.
These rules don’t apply if you buy new shares of the same type in the same company within 30 days of selling your old ones – you can call our team of tax experts on 0330 122 9972 or contact HMRC if you need help to work out your gain in these circumstances.
What about if you bought the shares through an investment club?
Again, the rules are different for shares bought through an investment club. For those of you who don’t know, an investment club is a group of people, usually around 10, who buy and sell shares together on the stock market so all shares are jointly owned. If you are a member of an investment club, you should get a written statement of your gains and losses at the end of each tax year from whoever runs your investment club – if you have made a gain on your shares, you will need to work out whether your gains are above your Capital Gains threshold. If so, you will need to report these gains to HMRC and pay tax on them.
If you transfer shares that you already own into the investment club, HMRC count that as you selling them (or disposing of them) so you would need to work out your gain to determine whether you would need to pay any Capital Gains Tax on the transfer.
The rules for losses are different – you might be able to apply those losses as ‘allowable losses’ to any gains you have made to lower your Capital Gains tax bill. Expert advice can be invaluable in these instances to make sure that you apply your losses correctly because you can also carry them forward as well as applying them to previous gains. To make sure you don’t lose out, our experts can make sure you claim your losses as efficiently as possible so call our specialist team on 0330 122 9972.
What happens when you leave an investment club?
Basically, the other members of the club will buy back your shares if you decide to leave your investment club so you will need to work out your gains or losses to determine whether you will have to pay any tax on those shares when you leave.
To work out your position, you will need to take your share of any gains during your time in the investment club and then deduct your share of any losses. Add on any dividends you have received (after tax). Add any other money you received from the club and deduct anything you paid in (maybe you paid a monthly fee to invest, for example) and then finally, deduct the total from what you received from the club for your shares when they bought them back from you. We know how complex this can sound to people who aren’t very confident with their taxes so our experts are always at hand to help make your taxes simple – call us on 0330 122 9972.
What do you do if you run an investment club?
If you run an investment club, or act as club treasurer or secretary, then you are responsible for informing your members of their tax position at the end of each tax year. If you’re just starting the club, make sure that you are running it correctly – you might need to get legal advice to ensure that its rules and constitution are sound.
When dealing with the club’s finances, you will need to:
Divide any income, gains and losses between the members in accordance with the rules of your club.
Give each member a written statement at the end of each tax year – you can download a template from the HMRC website.
Keep good financial records for your club, including members’ income and gains.
Arrange to buy back the shares of members who want to leave the club.
Our experts at DSR Tax Claims can’t stress the importance of keeping good financial records enough – whether it is for your own business, you tax refund claim or for the smooth running of an investment club. Poor record keeping is likely to land you in hot water with HMRC. If you’re not sure what you need to keep, call our experts on 0330 122 9972 and let us take some of the hassle out of your taxes.
What tax relief can you claim?
There are a number of forms of tax relief that might apply to you. Our experts have listed the following tax relief areas which might apply to you when you sell shares:
Entrepreneurs’ Relief: if applicable, you will pay 10% Capital Gains Tax (instead of the normal rates) if you sell shares in a company where you have at least 5% of ordinary shares and voting rights (HMRC call this a ‘personal company’).
Gift Hold-Over Relief: you won’t have to pay any Capital Gains Tax if you give away shares in a personal company or unlisted company – the person you gift them to will pay the tax when they sell them.
Enterprise Investment Scheme (EIS): you can delay or reduce the amount of Capital Gains Tax you pay if you use your gains to buy unlisted shares in companies approved for EIS.
Seed Enterprise Investment Scheme (SEIS): you won’t pay any Capital Gains Tax (up to £100,000) if you use your gains to buy new shares in small early-stage companies that are approved for SEIS.
Rollover relief: you can delay paying your Capital Gains Tax if you sell unlisted shares to the trustees of a share incentive plan (SIP) and use the proceeds to buy new assets.
When we use the term ‘unlisted shares’, we mean shares that aren’t listed on any recognised stock exchange in the UK or abroad so if, for example, your shares are listed on the London Stock Exchange, they don’t class as unlisted shares.
How can DSR Tax Claims help?
We know that working out your capital gains when you sell shares can be a complicated affair, even with our helpful guide to tell you everything you might need to know. It’s all very well reading about it and knowing what HMRC’s stand on it is – but how do you apply that to your own circumstances? It can seem like an absolute minefield but help is always available and you don’t need to battle through this alone. Our team of experts at DSR Tax Claims are always on hand to help our client and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.