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Money, tax and benefits

Money, tax and benefits

Tax on the sale of shares

If you make total 'gains' (profits) above a certain level when you dispose of assets, including shares, you may have to pay Capital Gains Tax (CGT). Special rules apply for identifying shares acquired in the same company at different times - to ensure you work out the correct gain or loss.

Working out whether you have to pay CGT

Whether or not you need to pay CGT when you dispose of shares depends on your total gains for the tax year. This includes the gain on the shares and gains on the disposal of any other assets that attract CGT.

CGT is charged on total gains after:

  • deduction of the costs of acquisition and disposal of each asset
  • taking into account any reliefs that affect the amount of a gain - some apply automatically others have to be claimed
  • deduction of allowable losses arising from the disposal of other shares or assets
  • applying 'taper relief' - this may reduce the taxable gain on an asset depending on the nature of the asset and how long you've held it
  • deducting from the total taxable gains left the 'Annual Exempt Amount' (AEA) - for the tax year 2008-2009 this is £9,600

How much CGT will you pay?

This depends on your overall income.

To find out how to calculate CGT including illustrative examples and check which other assets attract CGT read our related article.

Special rules for working out gains on shares

Shares differ from most other assets that attract CGT because they're not uniquely identifiable. You may buy shares of the same class in one company at different times and at different prices. As a result you have to apply special rules when working out their acquisition cost for CGT purposes.

Shares through an employee share scheme

Special CGT rules apply to shares bought or acquired through an employee share scheme. HM Revenue & Customs (HMRC) approved schemes, such as Share Incentive Plans, approved Save As You Earn (SAYE) schemes, Company Share Option Plans and Enterprise Management Incentives offer tax advantages.

If you follow the rules, you may pay less or no CGT when you sell the shares.

Reporting the sale of shares and paying CGT

If you normally complete a Self Assessment tax return

You must fill in the CGT pages of your return if any of the following apply:

  • CGT is due
  • you wish to claim an allowable loss or a relief or to make an election
  • the total value of all your disposals that attract CGT is above four times the AEA - whether or not you made gains
  • you deduct losses and your gains before deducting losses and applying taper relief are greater than the AEA
  • no losses are deducted, but the gains after taper relief are more than the AEA

If you don't tell your Tax Office about gains that should be included on your tax return you may be liable to financial penalties and/or prosecution.

Ordering the CGT pages

  • if you complete the full paper return you can download the pages from the HMRC website, or use the online ordering service - see 'More useful links'
  • if you complete the short paper tax return ask your Tax Office for form SA200CG or use the online ordering service - see 'More useful links'
  • the CGT pages aren't currently available with HMRC's Self Assessment Online software - you'll need to complete a paper return instead
  • if you use commercial software the pages may be available

If you don't normally complete a tax return but CGT is due

  • write to your Tax Office and supply your CGT calculations - they may send you a bill, or ask you to complete a tax return
  • If you don't tell your Tax Office that you have CGT liability within six months after the end of the tax year, you may have to pay a penalty

Selling or giving shares to your spouse, civil partner or children

You don't have to pay CGT if you sell or give shares to your husband, wife or civil partner while you're legally married or in a civil partnership and living together. But if they later sell or give away the shares, they may have to pay CGT on the gain - based on their original cost to you.

There's no special relief if you sell or give shares to your children.

Giving away shares or selling them for less than they're worth

If you give shares away - so you get nothing for them - your gain is based on what they're worth. It's the same when you sell them for less than their full value. So you need to work out the gain based on the full value of the shares when you gave them away.

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