Capital Gains Tax on Shares UK

You have to pay capital gains tax for stocks UK when you sell your shares at a profit. Not only stocks, but also other investments you have like units in a unit trust, certain bonds, and shares that are not on an ISA or PEP. Capital gains tax on shares UK is charged at a rate of 10% and 20% depending on your income tax band. However, if you are a basic rate taxpayer, the gain you make from the sale of shares could push you into a higher tax rate bracket.

You can hold assets in joint names and transfer them to your spouse so that he or she can use their CGT allowance on disposal. It is a requirement to pay capital gains tax on cryptocurrencies, shares, and funds on disposal.

What is a Share?

Just like the name suggests, a share is a small piece of ownership in a company. Companies are owned by shareholders. So, when you buy a share, you are buying a piece of ownership in that company. You can buy and sell shares. When you sell a share at a higher profit than you bought it, you make a profit or a gain. For such capital gains on shares UK, you are required to pay capital gains tax.

What is Capital Gains Tax on Stocks?

Capital gains tax is a tax incurred when you sell stocks such as shares at a profit. The amount of tax payable will depend on how long you have held these shares. There are short term and long term shares. Besides, there are various ways you can lower how much capital gains tax you owe. 

Read more: How to invest in stocks for beginners UK.

When Do You Pay Capital Gains Tax on Stocks UK?

You pay capital gains tax on stocks if your profit is above the capital gains tax allowance which currently stands at £12,300. You have to pay capital gains tax when you sell shares or other investments at a profit. You need to calculate your gain to know whether you are liable for capital gains tax. You can use the capital gains tax calculator UK to calculate your tax payable.

Her Majesty’s Revenue and Customs (HMRC) is responsible for tax collections in the UK. 

When You Don’t Need to CGT on Shares

There are some circumstances when you don’t need to pay capital gains tax on shares. They include:

  • When you gift your husband, wife, or charity your shares
  • When you sell shares you have put into an ISA or PEP
  • When you sell shares in employer Share Incentive Plans (SIPS)
  • When you sell employee shareholder shares
  • When you sell qualifying UK government gilts

Capital Gains Tax Rate on Shares

The amount of tax you need to pay depends on the amount of profit you make when you sell shares. The capital gains tax rate on shares is 10% for basic rate taxpayers and 20% for high rate taxpayers. However, there is a tax-free allowance of £12,300 for individuals. It implies that capital gains of up to £12,300 are tax-free.

How to Avoid Capital Gains Tax on Stocks UK

There are many ways of avoiding capital gains tax on shares UK. They include:

1. Work Your Tax Bracket

Long term capital gains are taxed at a lower rate. However, high capital gains can push you to a higher tax bracket. You can avoid capital gains tax in stocks by deferring to sell your stocks until a later date if you are close to the upper end of the income tax bracket. This will help you avoid having your earnings taxed at a higher rate.

2. Tax-Loss Harvesting

You can use a tax-loss harvesting tool to avoid capital gains tax on shares UK. If you make a loss from the sale of shares, you can offset the capital losses with long-term, or short-term capital gains. Any losses on stocks can be used to offset additional capital gains first. Additional losses can be carried forward and used to offset capital gains in the subsequent years.

3. Donate Stocks to Charity

You can donate your shares to charity to avoid paying capital gains tax on shares UK. By so doing, you are not liable to tax due to capital gains and the market value of the shares you donate can be used as a tax deduction. You just need to itemize these deductions when filing your tax returns.

4. Hold Stocks Until You Die

You are only liable for capital gains tax when you sell shares at a profit. As such, you can avoid capital gains tax on shares when you hold shares until you die. Your heirs can inherit your shares and they can get an exemption if they claim a step-up in the cost of inherited stocks.

5. Use Tax-Advantaged Retirement Accounts

You can hold your stocks in a tax-advantaged retirement account like an IRA. Any capital gains from the sale of shares and stocks in the account will not be taxed. If you use Roth IRA, capital gains can be a part of the account balance and you can withdraw it tax-free. 

Summary of Capital Gains Tax on Shares

When you sell shares or stocks at a profit, then you must pay capital gains tax. There is a tax-free allowance for capital gains of up to £12,300 for individuals. Besides, you can take the above measures to avoid paying capital gains tax on shares. However, while you want to avoid capital gains tax on shares, it is important that put things into perspective. What I mean is, don’t just aim at avoiding capital gains tax on shares UK, but also consider increasing your gains on shares.

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This article was updated on January 29, 2023

Vincent Nyoike

Vincent Nyoike is an experienced business consultant and financial analyst. He is a CPA and is currently pursuing a Master of Science in Finance and Accounting at JKUAT. He holds a B.Sc. in Applied Statistics from the University of Eldoret