A guide to selling direct shares – tax implications
The tax treatment in the UK generally falls under Capital Gains Tax (CGT). Here’s a guide on the tax treatment of selling shares as an individual in the UK:
1. Capital Gains Tax (CGT): Capital Gains Tax is a tax on the profit made when you sell or dispose of an asset that has increased in value. Shares are considered assets for CGT purposes. When you sell shares, you might need to calculate and pay CGT on any gains you’ve made.
2. Basic Calculation: The basic calculation for CGT on the sale of shares involves deducting the original purchase price (cost) from the selling price. The resulting gain is subject to CGT.
3. Annual Exemption: Each individual has an annual tax-free allowance for CGT called the “Annual Exemption.” The current annual exemption is £6,000 (for the tax year 2023/2024). This means that if your total gains from all sources, including share sales, are below this amount, you won’t have to pay CGT.
4. Rates of CGT: The rates of CGT depend on your overall taxable income and the type of asset you’re selling. The current tax rates are as follows:
- Basic Rate Taxpayer: 10% CGT on gains (18% for residential property).
- Higher Rate and Additional Rate Taxpayers: 20% CGT on gains (28% for residential property).
5. Reporting and Payment: You need to report any capital gains and calculate your CGT liability in your Self Assessment tax return. If you’re not already within the Self Assessment system (e.g., you’re only selling shares occasionally), you might need to notify HMRC and report the gains separately.
6. Losses and Allowable Costs: If you make a loss on the sale of shares, you can use that loss to offset gains from other assets. Additionally, some costs associated with acquiring and disposing of the shares might be deductible, reducing the overall gain subject to CGT. Please consult with your accountant on this.
7. Inheritance Tax Considerations: If you pass away while holding shares, their value might be subject to Inheritance Tax if your estate’s value exceeds the Inheritance Tax threshold.
Please note that tax laws can change, and it’s crucial to consult the latest information from HMRC or seek advice from a qualified tax professional before making any decisions related to selling shares or managing your tax liabilities.