Buying shares and tax

deutsch

I would like to buy some shares. I have been practising and following the market for a while now. I'm still no expert and ecomonic genius, but I feel I am ready to make some money (more than the pathetic bank interest rates around).

A few questions I have though:
How much do I have to profit to be charged tax if I had an ordinary shares account.
Is it worth having an ISA share account?
What is the difference between capital gains tax and income tax and which one would I be taxed under?

Linton

deutsch wrote: »

How much do I have to profit to be charged tax if I had an ordinary shares account.
Is it worth having an ISA share account?
What is the difference between capital gains tax and income tax and which one would I be taxed under?

1) If your total gains in shares you have sold are more than £10,100 in a year you will be charged CGT. Unless you are exceedingly rich and careless you should be able to avoid this.

2) Putting shares in an ISA is only really financially worthwhile if:
- you expect to be liable to CGT
- you get significant money from dividends and pay higher rate income tax
- you are over 65 and dividend income would take you over the tax allowance claw-back rate

An ISA also avoids any hassle with keeping tax records. If you fill in a tax return you need to include non-ISA dividends although they may not affect your tax.

There arent any downsides, so if you have the allowance available you might as well use an ISA.

3) Realised gains in share value are liable to CGT. The rates for CGT above the £10100 allowance are 18% for basic rate income tax payers and 28% for higher rate tax payers.

Dividends are income taxed for higher rate tax payers only - effectively at 25%.

MacsReturns

You pay 0.5% Stamp Duty on any shares you buy. CGT applies to 'capital gains' (ie increase in value of an asset between you buying and selling it) but has a threshold of just over £10k. So you can make £10k PROFIT and have no CGT to pay.

Dividend income is treated as tax-paid if you are basic rate, if you're a higher rate taxpayer you'll have to declare dividends and pay an extra 18 or 28% - I can't remember which, I've never needed to know

ISA accounts shelter you from any CGT or income tax liability, but not stamp duty. IMHO, it's worth having an ISA account for the simple reason you don't need to declare it - saves a lot of paperwork

The other costs you need to consider are trading costs, and the bid/offer spread of the share price. With small trades these can become quite significant, and you need a much bigger share price movement to REALLY make a profit. Factor these in and you may find your recent 'following the market' might not realise any ACTUAL profit.

Hope this helps :beer:

deutsch

Thank you for your replies.

I've anticipated the fees involved in buying and selling shares and also the stamp duty in buying.

I have been practicing on share.com and I am thinking of investing between £5k and £15k. I've actually calculated I might be better off with their "trader option".

Here are the shares I've been following:
BP
Barclays
GlaxoSmithKline
RBS
AstraZeneca
Lloyds
Severn Trent

Barclays looks buyable in the short term from today.

I do believe though that there is an opportunity awaiting in the future where the share prices will go down again too and are buyable. I think they are starting to go down now actually.

I've also looked into buying gold, but I don't really know how to buy and sell gold.

Loughton_Monkey

If you are new to share trading, you might want to add a couple of Investment Trusts as well as making individual share choices yourself.