Selling Shares – How Can You Save Tax?

By February 24, 2022 Insights

It is now easier than ever before to purchase and sell shares and that’s down to a range of online platforms. This means that investing is easier but how can you reduce the amount of tax you need to pay when it comes to selling shares?

Reducing the Tax You Pay When Selling Shares

Everyone wants to pay as little tax as possible and this is no different when it comes to selling shares. While this is not tax advice, it is worth ensuring that you obtain professional advice.

Use an ISA to Invest in Shares

It’s possible to invest in individual shares as well as a variety of managed funds through a Stocks and Shares ISA. This is also known as a tax wrapper and should you receive profits on shares, then capital gains will not be applicable. Furthermore, you won’t pay income tax on share dividends that come from companies that you have invested in. It’s possible to use an ISA to invest up to £20,000, however, it is worth remembering that shares can go up and down in value, so you might not receive the amount that you originally put in.

Take Advantage of Your Annual CGT Exemption

The current threshold for capital gains tax is £12,300 and this is applicable to individuals who are married or in a civil partnership. It is an allowance that has to be used or you will lose it as it cannot be carried forward. 

Get Married

If you get married then collectively, you can take advantage of £24,600 in gains without the need to pay any tax. In some instances, it is possible to move assets between spouses and civil partners that are free of tax. So, you might want to consider moving shareholdings to a spouse that might pay the lower tax rate or have not made use of the capital gains tax allowance. 

Delay the Sale of Shares By a Day

The 31st January is the date by which you have to pay any capital gains tax to HMRC for the sale of shares. So, for any capital gain that was made before the 6th April 2021, the capital gains tax would be paid by the 31st January 2022, which has now passed. So, the tax has to be paid by the 31st January after the year in which the capital gain was obtained. However, if you had waited until the beginning of the next tax year, then you would have to pay any capital gains tax in the following year.

Managing Your Projects

Avoid Paying Tax Twice

It is worth noting that capital gains tax are removed when you pass away. This means that your inheritance tax will be due on your estate as opposed to capital gains tax on any profit that you have made on shares. Should you sell shares later in life and pay capital gains tax, then the cash you receive will then be subject to inheritance tax. So, this will mean that you are paying tax twice on the same effort. 

To inform HMRC of the sale of shares, then you will need to add the information to your Self-Assessment tax return. When it comes to calculating the gain, certain costs can be deducted that are related to the purchase and sale of shares which might include stockbrokers fees or stamp duty reserve tax.

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