How do I work out Capital gains tax on shares
Individuals are charged Capital Gains Tax (CGT) in respect of gains realized from the sale, transfer or disposal of assets. There are many assets that may be subject to CGT and these include properties, shares, business assets, bonds, precious metals etc. If you plan to sell your shares or all or part of your business, we can advise you on tax planning opportunities available to you before you make your disposal, in order to mitigate or reduce potential tax liabilities.
Legislation on the capital gains tax is a very complex area. There are numerous reliefs and exemptions that can lead to important tax savings. Therefore it is recommended that you undertand the calculation of capital gains tax for your share disposal or seek our advice – we will be able to prepare your Capital Gains Tax calculations, claim reliefs you may be entitled and calculate any liability that may be due.
The process of calculating capital gains tax is as follows :
· Step 1: Work out how much you received
· Step 2: Work out how much your shares cost
· Step 3: Work out how much you spent to buy, sell the shares including the costs of disposal/purchase
· Step 4: Work out the gain or loss so far
· Step 5: Apply tax reliefs
· Step 6: Work out your Capital Gains Tax bill
In June 2000 you bought some shares for £50,000.
You paid £2,000 in fees to buy the shares.
In June 2011 you sold the shares for £200,000.
From the amount you sold the shares for (£200,000) take away the amount you paid for them (£50,000) along with the cost of the fees (£2,000).
So your gain before applying any reliefs is £148,000 (£200,000 – £50,000 – £2,000).
If you had sold the shares for £40,000, you would have made a loss of £12,000 instead (£40,000 – £50,000 – £2,000 costs).
If you’ve worked out that, so far, you’ve made a gain, there are tax reliefs that may reduce or postpone that gain.
For example the following reliefs may be available:
- Entrepreneurs’ Relief – if you sell or dispose of shares that count as business assets
- Gift Hold-Over Relief – if you make a gift of shares that count as business assets
There are specific rules for your shares to count as business assets and these rules vary depending on the type of relief. See the link below for more on this.
How do I reduce capital gains tax by Spreading the gains over tax years
If you plan to sell your shares or all or part of your business resulting in large capital gains tax bills, we can advise you on tax planning opportunities available to you before you make your disposal, in order to mitigate or reduce potential tax liabilities. These strategies include :
· Instead of selling, say, a whole heap of shares or business or assets all in one go, you can split your sales over two or more tax years similar to buyouts arrangemnts where teh seller agrees to sell a % over a period (there is no law which says you cant spread your sell over the years – as long as its clear you are not selling outright and you can come up with a good commercial argument for doingthis, other than tax reduction – you will be ok).
· Making the sale conditional or not ascertainable –meaning there is not CGT for some time for part of the sale.
· Selling the assets right at the end of the tax year. For example, you could sell some shares in 2012/13 and then sell more on or after 6 April 2013. By doing so, you can take advantage of two years’ CGT allowances totalling £21,200.
If this is complex and confusing to you we recommended that you seek our advice – we will be able to provide detailed help, rview your sale contracts, prepare your Capital Gains Tax calculations, claim reliefs you may be entitled and calculate any liability that may be due.