Tax On Shares

neilem

Just a quick question, as I imagine a lot of people know the answer to this already.

Do I have to pay tax on any sold gains from a stock, even if I put it into another stock immediately afterwards?

For example:
Bought -

• 1000 shares in Company1 for £1000
• 1000 shares in Company2 for £1000

Then after a while -

• Sold all my stake in Company1 for £10000 (10x profit).
• Immediately after bought £10000 worth of shares in Company2.

Is this subject to CGT in that financial year, even though I haven't technically cashed out and didn't see any of that profit. Or do I have to pay CGT when I sell the shares from Company2?

Linton

In your example you "cashed out" as soon as you sold Company1.


You are liable for CGT whenever you sell shares if not in a tax protected account. You are only charged CGT on your total gains in a tax year beyond the £11700 allowance.

ColdIron

You have cashed out (technically or otherwise) and you have made a profit. Sale of Company1 is a disposal and therefore liable for CGT outside an ISA or a SIPP but you have an allowance or annual exemption of £11,700 so may not have pay any. You have made a profit of £9,000, that is your gain

bowlhead99

In that particular example you have realised a profit of £9000 on company 1 - selling investments with a cost of £1000 for proceeds of £10000, which is a capital gain whether you like it or not - and (generally) regardless of whatever other company you spend your proceeds on next

Is this subject to CGT in that financial year

It's 'subject to' the capital gains regime, but in that particular example it would be covered by your annual exemption of up to £11,700 of gains in every tax year so if you don't sell anything else you are fine.

, even though I haven't technically cashed out and didn't see any of that profit.

Technically you did see that profit. How else were you able to buy an extra £10000 worth of Company2 shares, if all you had was your initial £1000 invested in company1 and didn't make any gains?! Answer: you made a profit of £9000 by disposing of your company1 shares.

Or do I have to pay CGT when I sell the shares from Company2?

There are specific rules for deferral of capital gains against new assets to pay when those new assets are later sold, but generally only relevant in certain specific instances - e.g where the be shares you are buying are new issues of shares qualifying for the EIS or SEIS schemes. Which won't apply if you are buying shares in a typical company second-hand off someone else on the stock market. But could apply if you were investing in some brand new start-up company or speculative crowdfunding venture.

neilem

Ah, I assumed wrong then. Thanks for clarifying everyone!

I'm a PAYE employee earning above the £11700 exemption amount, surely that wouldn't still be available in this instance or is it more specific for shares only?

Also, the sell occurred a couple of years ago, which further complicates things. Now that I know better I still want to pay the tax on this (if I figure out if I'm owing based on the previous question), I take it that's still possible to pay retrospectively?

ColdIron

You have a Personal Allowance of £11,850 for income. You have a separate and additional exemption of £11,700 specifically for capital gains. This was £11,100 a couple of years ago

https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances

neilem

Thanks again. Last question, if I bought the shares in 2013/2014 tax year, but sold the Company1 shares during 2017/2018 tax year. Am I able to substract the original cost of the shares I bought them, from my what I sold them for, in order to work out my gain (even if it’s a different tax year)?

ColdIron

It doesn't matter when you bought them, it's your gain when you sell them, your gain is the difference between what they cost you and the value at sale. E.g. £10,000 - £1,000 = £9,000 in your example. You can also deduct dealing fees and any stamp duty from that gain

soulsaver

And note that a capital gain can arise from the disposal of other assets as well as shares.

neilem

Thought I'd bump the thread with another question (well, two questions).

• Is dividends considered income or capital gains? I'm curious whether it comes within the CGT threshold.
  
• I have a long-term stock but was thinking of selling high and buy back on a dip. However, the tax hit wouldn't really make this gamble worthwhile because I'd have to pay the tax on the gain and the stock could tank afterwards, leaving a pretty hefty tax bill. What is normally done in this situation, do you guys set aside the cash amount you owe for tax separately straight after selling?

cloud_dog

neilem wrote: »

• Is dividends considered income or capital gains? I'm curious whether it comes within the CGT threshold.

Income

neilem wrote: »

• I have a long-term stock but was thinking of selling high and buy back on a dip. However, the tax hit wouldn't really make this gamble worthwhile because I'd have to pay the tax on the gain and the stock could tank afterwards, leaving a pretty hefty tax bill. What is normally done in this situation, do you guys set aside the cash amount you owe for tax separately straight after selling?

Any investments outside of an ISA (or SIPP) are managed to mitigate CGT, i.e. each year I would sell X%.

I wouldn't in this scenario be looking to re-invest back in to the same stock. Additionally there is the 30 day rule which means if you sell and re-buy within 30 days for CGT calculations the original purchase price would be used when you finally dispose of the stock and calculate any CGT.

I don't generally invest outside of ISAs (and SIPPs) because it takes all this headache away.