Taxation on profits from selling shares.

user58

Could someone kindly confirm that I have got this right.

When you sell shares and make less than £12,300 profit in total in a tax year then although you would pay no capital gains tax you would still have to declare all the profits to be set against your personal tax allowance of £12,500 together with things like wages etc and then pay tax on the share profits at your applicable personal tax rate.

Dazed_and_C0nfused

You are mixing up capital gains (£12,300 annual allowance) and income tax (£12,500 Personal Allowance).

If the gain is less than the CGT annual allowance then there is no CGT to pay and your income doesn't come into it.

If you have income (dividends) from the shares and have used your £12,500 Personal Allowance elsewhere, say from wages, then the first £2,000 of dividend income is taxed at 0%.

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

user58

Now I am really confused!

I am reading online that all profits from shares when sold are classed as taxable income and set against your normal personal allowance and that if the profit is over the £12,300 then capital gains tax is payable as well.

user58

I am looking at these 2 articles for instance:

Taken from the Times website:

Earning money from shares

There are two ways to earn money from shares. The first is if the company grows and becomes more valuable, then your piece of the company will be worth more. When it comes to selling shares, if you make a profit, CGT is applied. The second way is if the company in which you are invested in pays its shareholders a little bit of money, called a dividend, out of its profits each year. The taxman views this payment like a mini salary for you, even though you aren’t doing any work, so you will have to pay income tax on it if your total dividends in a year come to more than £2,000.

Everyone has a tax-free personal allowance (£12,500 in the 2020-21 tax year). Any money that you receive from your investments will be added to all your other types of income, including wages, pensions and rental income, and taxed at the bracket that is applicable to you:

• Basic rate – 20% income tax: £12,501 – £50,000
• Higher rate – 40% income tax: £50,001 – £150,000
• Additional rate – 45% income tax: £150,001+
• And this 1:
• Taken from this site : entrepreneurhandbook
  

• Stocks and shares are included in your tax-free personal allowance

  Every individual in the UK receives an annual tax-free personal allowance. In the 2020/21 tax year it is £12,500. Any money made from your stocks and shares investments will be included in this allowance, on top of additional income e.g. salaries, pensions, rental income.

  Any income over £12,500 will be taxed at the basic rate of 20% income tax. Income above £50,000 will be taxed at the higher rate of 40% income tax. In addition, there is an additional rate of 45% income tax for those earning £150,001+ per annum.

[Deleted User]

user58 said:

I am looking at these 2 articles for instance:

Taken from the Times website:

Earning money from shares

There are two ways to earn money from shares. The first is if the company grows and becomes more valuable, then your piece of the company will be worth more. When it comes to selling shares, if you make a profit, CGT is applied. The second way is if the company in which you are invested in pays its shareholders a little bit of money, called a dividend, out of its profits each year. The taxman views this payment like a mini salary for you, even though you aren’t doing any work, so you will have to pay income tax on it if your total dividends in a year come to more than £2,000.

Everyone has a tax-free personal allowance (£12,500 in the 2020-21 tax year). Any money that you receive from your investments will be added to all your other types of income, including wages, pensions and rental income, and taxed at the bracket that is applicable to you:

• Basic rate – 20% income tax: £12,501 – £50,000
• Higher rate – 40% income tax: £50,001 – £150,000
• Additional rate – 45% income tax: £150,001+
• And this 1:
• Taken from this site : entrepreneurhandbook
  

• Stocks and shares are included in your tax-free personal allowance

  Every individual in the UK receives an annual tax-free personal allowance. In the 2020/21 tax year it is £12,500. Any money made from your stocks and shares investments will be included in this allowance, on top of additional income e.g. salaries, pensions, rental income.

  Any income over £12,500 will be taxed at the basic rate of 20% income tax. Income above £50,000 will be taxed at the higher rate of 40% income tax. In addition, there is an additional rate of 45% income tax for those earning £150,001+ per annum.

This whole excerpt, bar one sentence, relates to income from shares that you hold, not remotely relevant to selling shares.

You have a personal allowance of 12500 to use against income. You have an additional 12300 Capital gains allowance to use against profits on share sales. The RATE of tax on those profits will be determined by your other taxable income.

Dazed_and_C0nfused

user58 said:

Now I am really confused!

I am reading online that all profits from shares when sold are classed as taxable income and set against your normal personal allowance and that if the profit is over the £12,300 then capital gains tax is payable as well.

That isn't what the Times article says.

There are two ways to earn money from shares. The first is if the company grows and becomes more valuable, then your piece of the company will be worth more. When it comes to selling shares, if you make a profit, CGT is applied. The second way is if the company in which you are invested in pays its shareholders a little bit of money, called a dividend, out of its profits each year. The taxman views this payment like a mini salary for you, even though you aren’t doing any work, so you will have to pay income tax on it if your total dividends in a year come to more than £2,000.

user58

Thank-you!

So dividends are set against your personal allowance and the only tax payable with profits on shares when sold is cgt if applicable?

Dazed_and_C0nfused

Yes.  But only if you have Personal Allowance available.  If not the income (dividend) is taxed at one of the dividend tax rates (0%, 7.5%, 32.5% or 38.1%).

CGT is on the profit from selling the shares.

user58

Thank-you!

I mis read the articles and thought 2 lots of tax were payable on profits from share sales!