What Types of Shares Do You Pay CGT On?
Some of the common share types and investment funds that you usually need to pay tax on, include:
- Certain kinds of bonds (excluding Premium Bonds and other Qualifying Corporate Bonds).
- Units that are associated with a unit trust.
- Shares (unless they are ‘wrapped’ inside in an Individual Savings Account (ISA) or Personal Equity Plan (PEP)).
Note: The section below explains the process for working out the gain to determine whether tax is due. But, you only pay Capital Gains Tax on overall gains above the Annual Exempt Amount (e.g. your tax-free allowance).
When You Don’t Need to Pay Tax
Under the rules for Capital Gains Tax and gifts, paying tax is not usually required when giving shares as a gift to a spouse (husband, wife), civil partner, or to a charity.
Furthermore, you do not pay CGT to HM Revenue and Customs (HMRC) when you lose ownership of (disposal):
- Employee shareholder shares (subject to the date you acquired them).
- Qualifying Corporate Bonds (QCBs).
- Shares put into an ISA, PEP, or employer Share Incentive Plan (SIP). See another section for details about how tax and Employee Share Schemes work.
- UK government gilts (includes Premium Bonds).
Working Out the Overall Gain
In simple terms, HMRC classifies the ‘gain’ as the positive difference between the purchase price of an asset (e.g. shares) and the selling price (the amount you receive). But, some situations will require you to use the market value rule to calculate the gain, such as when:
- Acquiring them through an Employee Share Scheme (or taking ownership before April 1982).
- Gifting shares or funds to someone who is not a spouse, civil partner, or charity.
- Inheriting them and being unable to establish the Inheritance Tax value (e.g. when applying for probate).
- Selling shares or investment funds for an amount below their realistic value (e.g. to help close the deal with a buyer).
Note: The Capital Gains Tax help guide has further information on how realised profits work (e.g. chargeable gains) in the United Kingdom.
Special Rules for Tax When You Sell Shares
What if you took ownership of the shares from someone who is claiming Gift Hold-Over Relief? In this case, you should use the amount they paid for them to determine the overall gain. But, use the cost price in circumstances where you paid less than the real value.
The special rules used to work out the cost of funds and investments also apply to situations where you sell shares:
- After a company reorganises its share structure (e.g. because of a merger or takeover).
- Bought at different times and with variable prices in the same company.
- Through one of the employee share schemes (e.g. Enterprise Management Incentives) or similar types of investment clubs.
Note: HMRC Self Assessment helpsheet HS287 contains more information about reporting employee share and security schemes for Capital Gains Tax in the United Kingdom.
Jointly Owned Shares and other Investments
What if you are selling shares or investments jointly owned with other people? If so, you must work out the gain for the actual portion that you own – not the whole value (unless it’s an investment club).
Deducting the Costs
The typical costs that you can deduct from the overall gain after buying or selling shares and other investments, include:
- Fees (e.g. payments to a stockbroker when trading stocks).
- Stamp Duty Reserve Tax (SDRT) charged on agreements to transfer ‘chargeable securities’ when buying shares.
You can contact HM Revenue and Customs (HMRC) to check whether you can deduct certain costs. The section below explains how to apply tax reliefs to reduce or delay paying Capital Gains Tax.
When You Need to Pay Capital Gains Tax
Having established a gain, you can calculate your Capital Gains Tax using the online tool – to work out how much tax you need to pay after selling your shares, if:
- You sold them at the same time.
- They are the same type and acquired on the same date in the same company.
The online calculator is not applicable for companies, agents, trustees, or personal representatives, or when you:
- Make a claim for any of the reliefs available.
- Sold other shares in the same tax year.
- Sold other chargeable assets in the same tax year (e.g. a property you are renting out).
How to Report a Loss
The rules differ when reporting a loss for tax purposes. You would be able to claim losses on shares that you own if they are considered as being ‘negligible value’ (e.g. the company goes into liquidation) or your shares become worthless.
Important: HMRC guidance explains more about using ‘Self Assessment helpsheet HS286‘ to make a negligible value claim on disposal of shares subscribed for in qualifying trading companies.
Selling the Same Shares in a Company
You will need to work out the cost using a different method if you are selling shares in the same company (e.g. bought at different occasions).
Thus, to determine the gain, you should use the average cost of the shares and then deduct this amount from the amount received.
Example of CGT Calculation:
Let’s assume you are trading the stock market and you buy 100 shares in a company (e.g. Apple) for eighty (80) pence per share. Thus, the total cost of your investment is £80.
At a later date, you buy another 300 shares and pay £1.20 for the extra shares. So, based on this example, the total cost of your additional trade is £360.
Your total number of shares in Apple (for example) is four hundred (400) and your total amount invested is £440. Hence, the cost of each share would be £1.10 when you work out the costing as an average.
What if you decide to sell 150 shares? In this example, the cost of the shares for the tax calculation would be £165 (150 x £1.10). So, you would need to deduct this amount from the selling price of the 400 shares to work out the gain.
HMRC’s guidance on shares and Capital Gains Tax (Self Assessment helpsheet HS284) explains more about the special rules that apply when buying new shares of the same type within thirty (30) days of selling the old ones in the same company.
Selling Shares through an Investment Club
Investment clubs allow people to buy and sell shares together as a group on the stock market. Hence, they are usually set up as a business partnership.
At the end of each tax year, you will get a written statement of gains and losses (e.g. investment club certificate) to help you work out Capital Gains Tax when selling shares in an investment club.
If You Leave the Investment Club
Investment clubs buy back shares from any members of the group who decide to leave. After leaving, you would need to include any gain or loss to work out if you need to pay tax, by:
- Taking the share of any gains realised during the club membership and deducting the share of any losses.
- Adding any income received from dividends (after tax). Another section has extra information about tax on dividends and the current allowance rates.
- Adding any other earnings received from the club, and then deducting any monies paid into it (e.g. monthly investment payments).
- Deducting the total from the amount received from the club for the shares.
Important: HM Revenue and Customs (HMRC) treats the transfer of owned shares into the club the same as ‘selling’ them. Thus, you would need to work out the gain after transferring shares into the club.
Running an Investment Club
As a rule, it is best to get legal advice if you want to start a new investment club (e.g. to set up the constitution and associated rules). But, the treasurer or secretary will have the responsibility of:
- Dividing any income, gains (as well as any losses) between all the members and according to the rules set out by the club.
- Giving a written statement to every member at the end of each tax year (e.g. the investment club certificate available from HMRC).
- Keeping accurate records including the income and gains of all members.
- Arranging to buy the shares from any members who have decided to leave the club.
Eligibility Criteria for Tax Reliefs
It may be possible to reduce or delay the amount of Capital Gains Tax (CGT) you pay when selling shares and other investments in the United Kingdom.
|Type of Relief||Brief Description|
|Business Asset Disposal Relief||Pay 10% CGT instead of the usual rates when selling shares in a trading company that you work for and have a minimum of 5% of the shares and voting rights (a.k.a. a ‘personal company’).|
|Gift Hold-Over Relief||Pay no CGT when giving away shares in a personal company or an unlisted company. Instead, the transferee pays tax when they sell them.|
|Enterprise Investment Scheme||Delay or reduce Capital Gains Tax by using a gain to buy unlisted shares in companies that qualify for EIS. See Self Assessment helpsheet HS297 for further details.|
|Seed Enterprise Investment Scheme (SEIS)||Pay no Capital Gains Tax on a gain up to a maximum of £100,000 by using a gain to buy new shares in small early-stage companies that qualify for SEIS. See Self Assessment helpsheet HS393 for further details.|
|Rollover relief||Delay paying CGT when selling unlisted shares to the trustees of a Share Incentive Plan (SIP) and using the proceeds to buy new assets. See Self Assessment helpsheet HS287 for further details.|
Note: Company shares will be classified as ‘unlisted’ unless listed on the London Stock Exchange (LSE) or one of the recognised stock exchanges outside the United Kingdom (e.g. the Frankfurt Stock Exchange).
Related Help Guides
- Get help with tax returns, allowances, and tax codes.
- Simple guide to stock market trading as a business.
- Tax if you are living abroad and sell your UK property.
Note: This short video presented by HMRC explains what allowable expenditure you can use to claim against Capital Gains Tax.