Is Capital Gains Tax due on of inherited shares and divided shares earned from them ?

SharestoSell

Hello

I inherited some shares when my brother died in 2011.  Since then, I have been receiving dividends as extra shares.  I need to sell some of the shares now so will the capital gain be the difference between;

a)      value of the shares when my brother died and the value of the same number of shares on the sale date.   ( ignoring the dividend shares )

b)     value of the shares when my brother died and the value of the all the shares (including the dividend shares) on the sale date

c)      value of the shares when my brother died and the value of the same number of shares on the sale date

Plus, the value of each dividend share when issued and the value at sale.

d)     or something else ?   

I only plan to sell around half of the shares, If the dividend shares are treated differently how do I differentiate ?

Best Regards

Linton

SharestoSell said:

Hello

I inherited some shares when my brother died in 2011.  Since then, I have been receiving dividends as extra shares.  I need to sell some of the shares now so will the capital gain be the difference between;

a)      value of the shares when my brother died and the value of the same number of shares on the sale date.   ( ignoring the dividend shares )

b)     value of the shares when my brother died and the value of the all the shares (including the dividend shares) on the sale date

c)      value of the shares when my brother died and the value of the same number of shares on the sale date

Plus, the value of each dividend share when issued and the value at sale.

d)     or something else ?   

I only plan to sell around half of the shares, If the dividend shares are treated differently how do I differentiate ?

Best Regards

(c) is basically correct

when selling you can use an average cost eg:

 sum of (cost per share bought or acquired X number of shares)/ total number of shares

so you don't link a sale with specific shares.  Each sale is assumed to consist of a balance of all the shares.

IanManc

The way to do it is as follows:

You need to find the value of the shares you acquired from your brother's estate, at the time of his death.

Next you need to find the acquisition values of all the shares you have acquired since, and add that total to the value of the shares you inherited.

Next you divide the total cost by the number of shares you now own, to find the base acquisition cost of each of the shares you own. This is because if you have a shareholding that has been acquired at different times in different transactions (or inheritances) the shares are "pooled", you find an acquisition cost for the whole pool, and then divide that total by the number of shares in order to find the acquisition cost of each individual share in the pool.

Next decide how many shares you want to sell, and from the proceeds of sale - and after deducting brokers fees - deduct the acquisition cost for the number of shares you sold. That will give you the figure for the capital gain you've made.

Remember to keep a note of the acquisition cost you've calculated for the shares you've still kept, so you don't have to work it out again if you sell more - although you'll need to do another calculation if you carry on acquiring shares instead of cash dividends, should you sell more shares after that.

Hope this helps.  🙂

SharestoSell

Thanks for the information.  
So if I had taken cash dividends each time I would have benefitted from my tax allowance each year, but it seems now if I sell all the dividend shares I will need to pay CGT on them all .  Is there any way to calculate the CGT that includes the previous years tax allowance ?  
Is there any limit to the number of years this needs to be calculated?  I have had these shares since 2011.

IanManc

SharestoSell said:

Thanks for the information.  
So if I had taken cash dividends each time I would have benefitted from my tax allowance each year, but it seems now if I sell all the dividend shares I will need to pay CGT on them all .  Is there any way to calculate the CGT that includes the previous years tax allowance ?  
Is there any limit to the number of years this needs to be calculated?  I have had these shares since 2011.

1. No. You need to calculate the gain in value of your shares since you acquired them.. You don't pay CGT on the whole value of the shares. I explained how to do it, step by step.

If your total gains this year exceed the annual CGT allowance (£6k this year, £3k next year) then CGT is payable on the amount over the allowance.

2. You need to calculate the gain for all the shares you own, however long you have owned them. I've shown you how to do it.

wmb194

SharestoSell said:

Thanks for the information.  
So if I had taken cash dividends each time I would have benefitted from my tax allowance each year, but it seems now if I sell all the dividend shares I will need to pay CGT on them all .  Is there any way to calculate the CGT that includes the previous years tax allowance ?  
Is there any limit to the number of years this needs to be calculated?  I have had these shares since 2011.

You're misunderstanding. The dividend counts as income in the year you received it. That dividend was then used to buy shares. As IanManc writes, you're now trying to work out the capital gain or loss between the purchase price and the sale price.

SharestoSell

Almost there .....
                              thanks for the information so far.
These shares are Prudential (PRU.L), there have been two demergers that I need to include in my calculations.

The first was the PRU/M&G demerger Oct-2019, I found information on their web site to explain how to re-base the share value for this demerger, see:( www.prudentialplc.com/~/media/Files/P/Prudential-V3/content-pdf/demerger-of-mandgplc-base-cost-apportionment-uk-shareholders.pdf ). 

The second demerger was PRU/JXN ( Jackson Financial Inc ) Sept-2021, I can not find any information how to calculate the Capital gains tax (CGT) base cost apportionment for the PRU/JXN demerger.   

Can anyone help ?

thanks. 

wmb194

SharestoSell said:

Almost there .....
                              thanks for the information so far.
These shares are Prudential (PRU.L), there have been two demergers that I need to include in my calculations.

The first was the PRU/M&G demerger Oct-2019, I found information on their web site to explain how to re-base the share value for this demerger, see:( www.prudentialplc.com/~/media/Files/P/Prudential-V3/content-pdf/demerger-of-mandgplc-base-cost-apportionment-uk-shareholders.pdf ). 

The second demerger was PRU/JXN ( Jackson Financial Inc ) Sept-2021, I can not find any information how to calculate the Capital gains tax (CGT) base cost apportionment for the PRU/JXN demerger.   

Can anyone help ?

thanks. 

There wasn't a rebasing for Jackson Financial, its shares were classed as a dividend payment.

https://www.prudentialplc.com/en/investors/shareholder-information/historical-information/demerger-of-jackson#:~:text=Upon%20completion%20of%20the%20proposed,you%20hold%20on%20that%20date.