CGT When does it impact my Stocks?

^(&*$%^&etwrdgfh · 19 April 2018 at 9:17AM

Hi All, I've been reading into CGT lately and thinking about future impacts on Shares and needed a bit of help clarifying some questions I had.

I have quoted MSE below which prompted my questions.

You don't pay capital gains tax (CGT) on gains made within an ISA - great if you exceed the £11,700 annual CGT allowance. CGT is a tax you'll have to pay on the gain you make when selling things such as shares, a second home (you don’t pay capital gains on selling your first home) and jewellery. So if you buy shares at £1,000 and then sell them for £1,500, you’ve made a £500 gain. You might then have to pay tax on that. But it's important to understand that... You’re allowed to make £11,700 of gains this tax year (2018/19) tax-free outside an ISA. So you would ONLY gain using a stocks & shares ISA in a year where you were making total gains over £11,700.

I have a small index fund currently in the S&P 500, less than 15k i have it setup to accumulate and don't make withdrawals from the fund.

I don't have an ISA currently and wondered if down the line it would make more sense to have a Share ISA to reduce CGT.

I understand I'm allowed to make gains of £11,700 during a year outside of an ISA without paying CGT i believe.

If I'm appreciating at 10% per annum let's say, is it only a concern when my gains in stock value reach this figure? On that basis when I have £117,700+ invested?

When does CGT affect myself?

Really appreciate any help in advance.

Thanks!

slapmatt · 19 April 2018 at 9:39AM

You pay Capital Gains Tax when you sell your fund. As the name suggests it is paid on gains, so for example, if you buy £15k worth of funds and sell for £45k you have made £30k in capital gains.

You receive a tax free allowance of £11,700, so subtracting that from the £30k means you have a taxable gain of £18,300, which leaves you with a CGT liability of £1,800 (currently 10%/20% for equities depending on whether you are a lower or higher rate tax payer).

There are ways to mitigate this. Firstly and most popular is to hold your fund in an ISA, which is exempt from CGT.

Secondly, you can dispose of your holdings slowly. If you sell up to £11,700 worth per year you can make the most of the annual exemption. The tax free exemption cannot be rolled over, however you can offset loses against your gains.

chrismac1 · 19 April 2018 at 11:57AM

I think it's crucial to make the most of ISA and SIPPs. Personally I have around £600k in the markets, with a profit of around £200k on that. But it is all in ISAs and SIPPs so CGT is not an issue.

This is even more the case when you go to individual stocks, you just never know. One of my shares - Burford - has gone from £1.10 to £14 since I bought it 2 years ago, the tax on that alone would be the best part of £20k but it is in an ISA.

CGT When does it impact my Stocks?

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