Capital gains tax explained Capital gains tax on shares
Capital gains tax (CGT) rates have been cut from April 2016 for gains (profit) on shares and investments. They are now 10% and 20%, rather than the previous rates of 18% and 28%, which still apply to property sales.
Shares and unit trusts
Special rules apply to shares and unit trusts, including:
- no capital gains tax on shares or units held in an Isa or pension
- if you acquire identical shares or units at different times, to work out the tax, HMRC assumes you dispose of them in a strict order.
Identical shares or units
If you have bought the same type of shares or units on several different occasions and sell some of them, you need to know which shares or units you are selling so that you can work out any tax bill using the correct initial value. To solve this problem, the tax rules say you must match the shares or units you are selling to the ones you bought in this order:
- shares or units you buy on the same day
- shares or units you buy within the next 30 days
- the rest of your shares or units. These are treated as being held in a pool and acquired at their average price.
You can get an HMRC help sheet, called 'HS284 Shares and capital gains tax' from the HMRC website.
You may get shares in the company you work for through an employee scheme at work. Depending on the scheme, there could be a capital gains tax bill if you immediately sell, and with all schemes there could be a future bill if you keep the shares and sell later:
- Share incentive plan (SIP) You are awarded or buy shares that are held in the plan for you. There is no CGT while the shares are in the plan nor when the shares are eventually transferred to you, At the time of transfer, you are treated as acquiring the shares at their market value and this forms the basis of calculating any taxable gain or loss when you dispose of the shares – so if you sell immediately there should not be any CGT to pay.
- Save-As-You-Earn (SAYE) Share option scheme. You save monthly to build up savings which earn a tax-free bonus over a period of three, five or seven years. At the end of that time, you can either withdraw your savings as cash or use them to buy shares in your employer’s company at a price set at the time the plan started. When you sell the shares, you may have a taxable gain or loss and generally this is based on the sale price less the price at which you acquired the shares under the option.
- Company share option scheme (CSOP) You are given the option to buy shares in the company at a set future date at a set price (which cannot be less than the market value of the shares on the date the option is granted). Assuming you take up the option, when you sell the shares, you may make a taxable gain or loss, and generally this is based on the sale price less the price at which you acquired the shares under the option less anything you paid for the option itself.
- Enterprise management incentive (EMI) You are given the option to buy shares in the company at a set future date at a set price. If the set price is less than the market value of the shares on the date the option is granted, this perk counts as part of your pay on which you have to pay income tax. Assuming you take up the option, when you sell the shares, you may make a taxable gain or loss and this is based on the sale price less the price at which you acquired the shares under the option less anything you paid for the option itself less any amount on which you paid income tax when the option was granted.
When you get employee shares from a SIP of SAYE plan, any increase in value is ignored if you transfer them within 90 days to an Isa or a personal pension. Because Isas and personal pensions are CGT-free, this means there is no capital gains tax when you eventually sell the shares (but no relief for losses either).
For more information about employee shares schemes, see the notes to the Additional information supplement available from HMRC website.
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