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Capital gains tax on shares

Capital gains tax on shares is charged at 10% or 20%, depending on your income tax band. This guide shows you how to calculate your bill.

In this article
Capital gains tax rates on shares How do I calculate my CGT bill?
Save tax with a Bed and Isa CGT on employee shares

Capital gains tax rates on shares

You may need to pay capital gains tax (CGT) on shares you own if you sell them for a profit. 

The amount of tax you're charged depends on which income tax band you fall into. Broadly speaking, basic-rate taxpayers are charged 10%, while higher-rate taxpayers must pay 20% in CGT.

However, if you're a basic-rate taxpayer the gain you make, when added to your income, could push you into the higher-rate bracket. In this case, you'd pay 20% on however much of the gain falls into the higher income tax band.

You'll only need to pay tax if your profit, or gain, is more than the capital gains tax allowance. In the 2022-23 tax year, this is £12,300, unchanged from 2021-22.

If you're part of a couple, you can use both of your CGT allowances to your advantage. It's possible to hold assets in joint names, and transfer assets to your spouse or civil partner so that they can use their CGT allowance on disposal. 

Unless they're held in a pension or Isa, you'll usually need to consider capital gains tax when selling shares, funds, investment trusts, cryptocurrencies such as Bitcoin, or other financial products for a profit.

  • Get a head start on your 2021-22 tax return with the Which? tax calculator - tot up your bill and submit it directly to HMRC.

How do I calculate my CGT bill?

Firstly, it's worth knowing that there's no capital gains tax payable on shares or units held in an Isa or pension.

But for all other shares, capital gains tax might be charged on the profits you make from a sale. 

If you sell shares of the same class in the same company, these are considered to be identical - regardless of whether they were acquired at different times, for different prices.

This is called a 'Section 104 holding', and you add together the costs of the shares in this holding by applying an average cost to all of them.

When you dispose of the shares, you need to match the shares being sold with shares you bought in order to work out the capital gain or loss.

To do this, the tax rules say you must match the shares or units you're selling to the ones you bought in this order:

  • shares or units you buy on the same day
  • shares or units you buy within 30 days following the day of disposal - this is known as the 'bed and breakfasting rule'
  • the rest of your shares or units – these are treated as being held in a pool and acquired at their average price as part of the Section 104 holding.

The bed and breakfasting rule can apply if the sale of shares can be matched to shares acquired within the following 30 days. It means the capital gains or loss on disposal can be calculated as the difference between the total proceeds from the sale, and the acquiring cost.

Example

Say someone held 5,000 shares in one company.

They bought 200 shares on 11 June, and the remaining 4,800 are in a Section 104 holding. The shareholder sold 2,000 shares on 30 May.

Using the order outlined above, the disposals would work like this:

  • no shares or units were bought on the same day
  • 200 of the sold shares can be matched against the 200 shares bought on 11 June under the bed and breakfasting rule
  • 1,800 sold shares to be matched against the shares in the section 104 holding.

Calculating the tax due for sales for shares can be tricky - HMRC has a help sheet called 'HS284 Shares and capital gains tax'.

 

Save tax with a Bed and Isa

The easiest way to sidestep paying capital gains tax on your investments is to make sure they're in a stocks and shares Isa, where any investment growth will be free from CGT, and any income such as interest or dividends will also be free from tax.

You're allowed to save or invest up to £20,000 in an Isa each year. 

If you already hold investments, you can't transfer them into your Isa. Instead you can opt to sell them, transfer the money to your Isa, and use that cash to buy the investments back - a pair of deals known as a Bed and Isa.

Bear in mind that there can be charges involved with buying and selling, and you'll generally have to pay slightly more to buy an asset than you'll receive when you sell it.

There's also a chance that the price will go up between your selling and buying it back, which could cost you. But if the price falls, that could work to your advantage. 

What's more, if you make a gain from selling the shares that exceeds your allowance, it could also a CGT charge.

Many investment platforms have processes that can simplify, speed up or reduce the cost of a Bed and Isa, so speak to your provider before you begin the process. 

Find out more: what is a stocks and shares Isa?

CGT on employee shares

You might 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 sell your shares immediately and, with all schemes, there could be a future bill if you keep the shares and sell later.

These are the main employee share plans your workplace could offer:

 

Share-incentive plan (SIP)

 

This is when you are awarded shares, 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 later dispose of the shares. This means that, if you sell immediately, there shouldn't be any CGT to pay.

 

Save-as-you-earn (SAYE)

 

With this option, you'll save monthly to build up savings that 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 might have a taxable gain or loss. This is generally based on the sale price, minus the price you bought the shares for.

 

Company share-option scheme (CSOP) 

 

You're given the option to buy shares in the company you work for at a set future date, at a set price - this can't 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 might make a taxable gain or loss.

Generally, this is based on the sale price, minus the price at which you acquired the shares under the option, minus anything you paid for the option itself.

 

Enterprise-management incentive (EMI) 

 

You're 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. 

If you take up the option, you might make a taxable gain or loss when you come to sell the shares. 

This is based on the sale price, minus the price at which you acquired the shares under the option, minus anything you paid for the option itself, and minus any amount on which you paid income tax when the option was granted.

When you get employee shares from a SIP or 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's no capital gains tax when you eventually sell the shares. Note that this also means you won't get any relief for losses, either.

For more information about employee shares schemes, see HMRC's helpsheet on Employee-related shares and securities.

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