Capital Gains Tax Allowance and stocks

Uriziel

The tax free allowance for capital gains is £3,000 a year.
If I buy stocks for £10k and they have gone up to £15k and I then I sell for £3k to take them out.
Have I then used my capital gains tax allowance?
Is it a smart thing to do to get £3k a year?

masonic

If you sell stocks you have bought for £10k for £3k then you have made a capital loss.

Do you mean you are considering selling £9k worth at their current £15k valuation? Then you would use your allowance.

Whether it is a smart thing to do or not depends on what your ultimate objective is. The focus is often to buy the same stocks within a S&S ISA where there would be no CGT consequences.

Uriziel

masonic said:

If you sell stocks you have bought for £10k for £3k then you have made a capital loss.

Do you mean you are considering selling £9k worth at their current £15k valuation? Then you would use your allowance.

Whether it is a smart thing to do or not depends on what your ultimate objective is. The focus is often to buy the same stocks within a S&S ISA where there would be no CGT consequences.

What I mean is that I buy stocks for £10k.
One year later this has gone up to £15k.
I take out £3k out of the stocks account and move this to a current account.
So I have made a gain of £5k in total and I am taking out £3k.
Is that using the allowance? Do I pay tax on the additional £2k of the gain or do I only pay tax if I take this out of the investment account?

wmb194

Uriziel said:

The tax free allowance for capital gains is £3,000 a year.
If I buy stocks for £10k and they have gone up to £15k and I then I sell for £3k to take them out.
Have I then used my capital gains tax allowance?
Is it a smart thing to do to get £3k a year?

No. Assuming you invest all the money in a single security your capital gain on disposal of £3,000 worth will be £1,000: £2,000 cost to purchase and then a 50% capital gain, £1,000. You would need to sell £9,000 to realise a capital gain of £3,000.

"Do I pay tax on the additional £2k of the gain or do I only pay tax if I take this out of the investment account?"

You're only liable to tax on crystallised gains. Withdrawing the money from the investment account is irrelevant, it's the act of selling the investment(s) that matters. 

Uriziel

wmb194 said:

Uriziel said:

The tax free allowance for capital gains is £3,000 a year.
If I buy stocks for £10k and they have gone up to £15k and I then I sell for £3k to take them out.
Have I then used my capital gains tax allowance?
Is it a smart thing to do to get £3k a year?

No. Assuming you invest all the money in a single security your capital gain on disposal of £3,000 worth will be £1,000: £2,000 cost to purchase and then a 50% capital gain, £1,000. You would need to sell £9,000 to realise a capital gain of £3,000.

"Do I pay tax on the additional £2k of the gain or do I only pay tax if I take this out of the investment account?"

You're only liable to tax on crystallised gains. Withdrawing the money from the investment account is irrelevant, it's the act of selling the investment(s) that matters. 

If I buy stocks for £10k and it keeps going up every year but I don't do anything with it and it stays in the same account. Do I need to pay any tax or do I only pay tax if I sell stocks? And there are no dividend payments

wmb194

Uriziel said:

wmb194 said:

Uriziel said:

The tax free allowance for capital gains is £3,000 a year.
If I buy stocks for £10k and they have gone up to £15k and I then I sell for £3k to take them out.
Have I then used my capital gains tax allowance?
Is it a smart thing to do to get £3k a year?

No. Assuming you invest all the money in a single security your capital gain on disposal of £3,000 worth will be £1,000: £2,000 cost to purchase and then a 50% capital gain, £1,000. You would need to sell £9,000 to realise a capital gain of £3,000.

"Do I pay tax on the additional £2k of the gain or do I only pay tax if I take this out of the investment account?"

You're only liable to tax on crystallised gains. Withdrawing the money from the investment account is irrelevant, it's the act of selling the investment(s) that matters. 

If I buy stocks for £10k and it keeps going up every year but I don't do anything with it and it stays in the same account. Do I need to pay any tax or do I only pay tax if I sell stocks? And there are no dividend payments

No, only when you sell.

Are you certain there will be no dividend payments? It'll depend on what you're buying but e.g., accumulation funds often pay dividends that are reinvested but you have to account for and declare as income.

ColdIron

Uriziel said:

The tax free allowance for capital gains is £3,000 a year.
If I buy stocks for £10k and they have gone up to £15k and I then I sell for £3k to take them out.

Why would you sell £15,000 of shares for £3,000? Or do you mean you sell £3,000 of the £15,000?

Have I then used my capital gains tax allowance?

No, Your capital gain on paper is £5,000 if you sold all of them. But if you only sell £3,000 (one fifth of your holding) your gain for the shares you sold would only be £1,000 (one fifth of your gain on paper). If you sold £9,000 of them that would realise a gain of £3,000

Is it a smart thing to do to get £3k a year?

When you find something that goes up 50% every year please let us know, I'm sure it will be wildly popular

What will you do when you sell the remaining £6,000 in the second year and have no money left invested?

What will you do when it goes down 50% some years?

DRS1

If you have investments outside an ISA or pension then it does make sense to use your annual CGT allowance each year.

It also makes sense to have your investments inside an ISA or pension so you don't need to worry about income tax or CGT.