Working out Capital Gains from shares

villieb

Hi,

My mum has got thousands of shares with Tesco. I am looking to help her diversify her holdings, which means looking to sell some of her current holding with Tesco

Looking through her holdings, some of her allocations has been through dividends / re-organisation / exercised options...

I am thinking that I would need to try and find out how much each allocation cost her at the time (earliest goes back to 1996) and then take an average... is this the right way to approach this?

Thanks!

bowlhead99

If she hasn't ever sold any, you just need to find out how much she has paid in total for the big pile of shares she now owns, and divide the grand total cost by the number of shares she ended up with.

That gives you a cost per share which is automatically a weighted average (e.g. 100 shares at 100p plus 200 shares at 200p, you've spent £500 buying 300 shares so that's 166.6667 pence per share).

Unfortunately if some of those are shares she got as a result of reinvesting dividends (eg. Scrip or Drip shares) rather than paying new cash out of her own bank account, she will need to see what amount of dividend was reinvested, to figure out how much she 'paid' in total for the shares.

If she doesn't have the figures and can't reasonably find out what the dividend amounts were, she could assume she paid 0p for those shares meaning she will have a bigger gain when she sells them and potentially a bigger tax bill. But if she can fit those capital gains into her annual capital gains exemption this year (or over several years) there may not be any tax to pay and so it might not really matter that she overstated her gains.

eskbanker

It needs to be a weighted average, i.e. (using completely random figures) if she bought 100 shares at £5 and 400 at £10 then the average would be £9 not £7.50.

Sum up the total cost paid (or equivalent market value) in each transaction and divide by the total number of shares to give the average acquisition price per share. Transaction costs can be included when calculating the taxable gain - further details at:

https://www.gov.uk/tax-sell-shares
https://www.gov.uk/capital-gains-tax

villieb

Thanks, so what I've done is used excel wizardry skills...

copied all the movements (as per the statements with her holding company) in to a CSV, managed to find historical share prices going back to 1996 - a little bit of vlookups and worked out that the weighted average price paid for the shares is over £6k more than what the shares are worth using today's share price.

I'm going to find out if my mum has got any dividend vouchers or anything like that will let me have a more accurate average price.

Now, moving onto CGT, I understand that the Capital Gains tax-free allowance is £12k

Is there any connection between CGT and an individual's tax-free personal allowance

I.e. if I got paid £13k, I'd have to pay 20% income tax on anything above the threshold - £500

If I sold shares and made a profit of £1000, would I pay tax on the £1500 or is the different taxes separate..

eskbanker

villieb wrote: »

Now, moving onto CGT, I understand that the Capital Gains tax-free allowance is £12k

Is there any connection between CGT and an individual's tax-free personal allowance

I.e. if I got paid £13k, I'd have to pay 20% income tax on anything above the threshold - £500

If I sold shares and made a profit of £1000, would I pay tax on the £1500 or is the different taxes separate..

Capital gains tax and income tax are separate and unrelated, and so if you earn £12,500 in income and also make a £12,000 gain on capital assets there's no tax to pay on either.

Unfortunately for your mother, it works the other way too, i.e. a significant capital loss can't be offset against income tax liabilities....

villieb

Brilliant - that's exactly what I wanted to hear. Thanks alot!

SonOf

And remember that you can phase disposals over multiple tax years. We are under 6 months away to a new CGT allowance.

milton1970

Apologies for piggy-backing on this post but have a quick follow up question in relation to selling shares (& the potential CGT gain calculation) shares in a single company where shares are held across a number of platforms. I have clear understanding of the costs associated with each tranche but trying to verify if there are any "ringfencing" options :

My example - I hold share in ABC plc in the following accounts :
1. 1000 ABC plc shares in a S&S iSA
2. 2000 ABC plc shares held in Trading Account with XXX dealing
3. 4000 ABC plc shares held in Trading Account with ZZZ dealing (ex SAYE shares)

My understand is that shares held in iSA can be ignored for the CGT calculation.

My question is - for CGT gain calculation MUST I consider all shares held in XXX dealing PLUS ZZZ dealing as a SINGLE pool or MAY I treat them as 2 SEPARATE pools for CGT gain calc purposes?

All hep appreciated

Reaper

Your capital gains allowance is not per provider. If you sell 500 shares with one provider and 500 of the same shares with another then you must work out the capital gains on both and set it against your allowance.

Otherwise it would be far too easy to avoid paying CGT simply by splitting your investments across a dozen companies.

However your ISA is indeed tax free and can be ignored. You are free to sell whatever you want within it.

milton1970

Thanks Reaper - what if I just sell with one provider ?

I am assuming that I consider the average cost across all (excluding iSA) ?

ColdIron

Basically yes, they are a single pool as you say