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Capital Gains Tax (CGT) is a tax on profit you make when you sell (also known as “disposing of”) an asset that’s increased in value.
What happens when you sell a share? Ordinarily, CGT is charged at 28 per cent on gains made from residential property and 20 per cent on any other chargeable assets.
If you’re a basic rate taxpayer you’ll pay 18 per cent and 10 per cent respectively.
You don’t have to pay CGT at all if your gains in a year are under your tax-free allowance.
Shares, however, involve slightly more complicated calculations.
You don’t need to pay CGT if your investment is held in an ISA or Personal Equity Plan (PEP), on certain bonds, or units in a unit trust.
Likewise, you won’t be charged CGT on shares received as a gift from your husband, wife, or civil partner, or shares in employer Share Incentive Plans (SIPs).
Any other shares are eligible to be taxed. To work out how much you’ll pay, you need to calculate the difference between what you paid for your shares and what you sold them for.
Use the market value if you received them as a gift from someone other than a husband, wife, or civil partner, or if you sold them for less than they were worth.
If you’ve bought lots of shares in the same company at different prices, you’ll need to work out the average cost per share.
After deductions, the total gain will be taxed according to your income tax band, as specified above.
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