Tax on selling shares

Greenstar62

I want to sell £14,000 worth of IHG shares (172 ordinary shares) because the price looks good. (I don't need to sell them.)

I inherited these from my mother in 2022 and paid 40% inheritance tax on them.

I earn about £21,000.

I phoned HMRC who say I will pay 8.75% tax on the sale. I checked that this wasn't just on the amount the shares had gone up by. He said it's on the total amount for the sale of the shares.

I plan to retire next July and will then have a small pension of about £10,000 until I get my state pension in 2029. I'll top it up with savings for those 4 years.

Should I wait until after July next year? Or even until new tax year April 2026?
Thank you, and please excuse my ignorance.

eskbanker

Greenstar62 said:

I phoned HMRC who say I will pay 8.75% tax on the sale. I checked that this wasn't just on the amount the shares had gone up by. He said it's on the total amount for the sale of the shares.

At least one of you was misunderstanding the other!

That percentage figure applies to dividends, not capital gains, which are taxed at 10% (or more if income plus gains take you into higher rate tax).

As implied by the name, CGT applies to gains, not proceeds, and there is an annual exemption of £3K before the liability kicks in.

Hoenir

IHT is payable by the estate. There's no correlation to individual assets. 

Base cost is the probate valuation. You'll be subject to CGT on any gain made at the applicable rate when you dispose of them.  Link to a guide beneath

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

Greenstar62

Both really helpful. Thank you.

Please could someone explain how I work out the £3K exemption? The shares were worth £8388 at probate and are now worth £13987 - a gain of £5,599.

Thank you again.

Greenstar62

And do I contact HMRC to tell them? (I don't complete a tax return).

MeteredOut

Greenstar62 said:

Both really helpful. Thank you.

Please could someone explain how I work out the £3K exemption? The shares were worth £8388 at probate and are now worth £13987 - a gain of £5,599.

Thank you again.

If you sell them now for £13,987, you've made a gain of £5,599. Assuming you've no other captial gains in this tax year, £3,000 is tax-exempt, and you should pay capital gains tax on the remaining £2,599. With your salary, I'd expect that to be 10% as a basic rate tax payer (£259.90).

There are strong rumours that CGT could be "tweaked" in the October 30 budget. Most recommendations are not to change what you plan to do based on rumours, but if you plan to sell anyway, I'd certainly consider doing it before then.

Delaying the sale to the next tax year would not reduce your CGT (and could increase it if the allowance is lowered in the budget), though you could also sell enough now to use up your £3K CGT allowance for this year, hope the limit does not reduce drastically, and then sell the remainder in the 2025/26 tax year, using that years allowance.

Here's the link detailing how to pay CGT: https://www.gov.uk/report-and-pay-your-capital-gains-tax/ways-to-pay

eskbanker

Greenstar62 said:

Both really helpful. Thank you.

Please could someone explain how I work out the £3K exemption? The shares were worth £8388 at probate and are now worth £13987 - a gain of £5,599.

Thank you again.

Greenstar62 said:

And do I contact HMRC to tell them? (I don't complete a tax return).

https://www.gov.uk/capital-gains-tax explains how to calculate, report and pay your CGT liability in easily understandable terminology.

Greenstar62

Greenstar62 said:

Both really helpful. Thank you.

Please could someone explain how I work out the £3K exemption? The shares were worth £8388 at probate and are now worth £13987 - a gain of £5,599.

Thank you again.

Is it 10% of £2599?

Keep_pedalling

If you sell just enough to keep your gain at no more than £3000 you will owe no CGT and have nothing to report. Sell the rest after April 5th next year. The risk is that they go down more than 10% before then so you could be a little bit worse off.

ColdIron

Greenstar62 said:

Please could someone explain how I work out the £3K exemption? The shares were worth £8388 at probate and are now worth £13987 - a gain of £5,599

£5.599 divided by 172 is a gain of £32.55 per share

If you sold all of them your taxable gain would be: £5,599 - £3,000 = £2,599 * 10% = £259.90 tax

If you sold 92 shares, 92 * £32.55, your gain of £2,995 would be within the £3,000 Annual Exempt Amount. You could sell the balance in the next financial year

Changes to CGT (rate, allowance etc) is widely expected in the upcoming Labour budget 30/10/2024

poseidon1

If indeed HMRC' s response to you was exactly as you state, then pretty much everything you were told was  wrong.

So:

1) You are potentially taxable on the difference between the probate value of the IHG shares you inherited, and the gain that accumulated by the time you sell.

2) Only if that gain exceeds your CGT allowance of £3000 ( current year). Will you have an 10% tax liability on the residual gain.  10% rate is for basic rate payers, had you been higher rate, cgt would be 20%.  The 8.5% rate you quote actually relates to dividends received  from shareholdings, so I do wonder ( being charitable) whether there was a fundamental misunderstanding between you and HMRC of what you were asking. As regards IHG dividends, have you declared these in the past?

3) A taxable gain in this tax year   ( 2024 /25), is reportable to HMRC by 31 December 2025 with the tax payable by 31 January 2026.

Please confirm the probate price at which you inherited, and a 'back of a fag pack' estimate of the current gain can be calculated, together with the tax. I assume for this purpose you have made no other disposal of assets liable to CGT?

Incidentally  it is as well to note that if selling the shares does trigger a significant gain above your £3000 exemption, you could reduce what you sell now and sell the rest at the start of the new tax year 2025/26. Of course that does risk the share price falling in the interim!