Capital Gains Tax When You Sell Shares

When you sell shares or other securities for more than you paid for them, you may need to pay Capital Gains Tax (CGT) on the profit. Whether you owe tax depends on the size of your gain and your annual CGT allowance. This guide explains how CGT applies to shares, how to calcul...

What you pay Capital Gains Tax on

You may need to pay CGT when you sell (or 'dispose of') shares and make a profit. The term 'dispose of' means selling, giving away, transferring, or exchanging an asset.

Shares and investments that may be subject to CGT include:

Shares that are not held in an ISA or PEP
Units in a unit trust
Certain bonds (but not Premium Bonds or Qualifying Corporate Bonds)

Whether you need to pay tax depends on your total gains for the tax year and whether they exceed your Capital Gains Tax allowance.

When you don't pay Capital Gains Tax

You don't usually need to pay CGT if you give shares as a gift to your spouse, civil partner, or a charity.

You also don't pay CGT when you dispose of:

Shares held in an ISA or PEP
Shares in employer Share Incentive Plans (SIPs)
UK government gilts, including Premium Bonds
Qualifying Corporate Bonds
Employee shareholder shares (depending on when you acquired them)

How to calculate your gain

Your gain is usually the difference between what you paid for the shares and what you sold them for.

However, in certain situations you must use the market value of the shares instead of the actual sale price. Use market value if:

You gave the shares away as a gift to someone other than your spouse, civil partner, or charity
You sold them for less than they were worth
You inherited them and don't know the Inheritance Tax value
You owned them before April 1982
You acquired them through certain Employee Share Schemes

If someone gave or sold shares to you after claiming Gift Hold-Over Relief, use the amount that person originally paid for them when calculating your gain.

Selling shares bought at different times

If you've bought the same type of shares in one company at different times and prices, you need to work out the average cost of your shares.

Example: You buy 100 shares for 80p each (total cost £80), then later buy 300 shares for £1.20 each (total cost £360). You now own 400 shares costing £440 in total, giving an average cost of £1.10 per share. If you sell 150 shares, the cost for your tax calculation is £165 (£1.10 × 150). Deduct this from your sale proceeds to work out your gain.

Important: Special rules apply if you buy new shares of the same type in the same company within 30 days of selling your old ones. Contact HMRC if this applies to you.

Jointly owned shares

If you own shares jointly with other people, calculate the gain only on your portion of the shares, not the whole value. Different rules apply for investment clubs.

Investment clubs

Investment clubs are groups of people who buy and sell shares together on the stock market. If you're in an investment club, you'll receive an investment club certificate at the end of each tax year from the club treasurer showing your gains and losses.

When you leave an investment club, the club buys back your shares. To calculate your gain or loss:

1. Take your share of any gains during your membership and deduct your share of any losses

2. Add any income from dividends you received (after tax)

3. Add any other money you received from the club and deduct anything you paid in

4. Deduct this total from what you received for your shares

Costs you can deduct

You can deduct certain costs of buying or selling shares from your gain, including:

Stockbrokers' fees
Stamp Duty Reserve Tax (SDRT) paid when you bought the shares

Contact HMRC if you're unsure whether a particular cost is deductible.

Reliefs

You may be able to reduce or delay paying CGT if you're eligible for tax relief. Various reliefs are available depending on your circumstances.

Reporting losses

If your shares become worthless or of 'negligible value' (for example, because the company goes into liquidation), you can claim losses on shares you own. HMRC has specific guidance on making negligible value claims.

Working out if you need to pay

Once you know your gain, you need to check whether you must report and pay CGT. This depends on whether your total gains exceed the annual CGT allowance for the tax year.

HMRC provides an online calculator to work out how much tax you may owe. You can use this calculator if you sold shares that were the same type, acquired in the same company on the same date, and sold at the same time.

You cannot use the calculator if you:

Sold other shares in the tax year
Sold other chargeable assets (such as a rental property) in the tax year
Are claiming any reliefs
Are a company, agent, trustee, or personal representative

Special circumstances

Special rules apply if you're selling:

Shares after a company merger or takeover
Employee share scheme shares
Shares if you're dealing with the estate of someone who has died

Sources

Tax when you sell shares

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.