Taxes on Shares and Share Based Investment
Published / Last Updated on 26/06/2024
There are different levels of tax and allowances on working or pensions income, property income and cash savings. There is also a different tax regime for shares and share based investments. We are not talking about stock ISAs as they are usually tax free but directly held shares and share based investment such as Unit Trusts, Investment Trusts, Open Ended Investment Companies (OEICs) and General Investment Accounts (GIAs).
Shares and share based investments usually distribute profits of the company or investment fund via dividends and you make a profit/gain when you sell.
Income Taxes on Share Dividends
There is no income tax to pay if the dividends you receive are within any unused Personal Tax Allowance.
If you have used up some or all your personal tax allowance and when dividend income is added to your income, it is above the personal tax allowance then income tax may be payable as follows:
If dividends are
- £0-£500 – tax free using your tax-free Dividend Allowance.
- In Basic Rate Tax Band: 8.75% tax is payable.
- In Higher Rate Tax Band: 33.75% tax is payable.
- In Additional Rate Tax Band: 39.35% tax is payable.
Total dividends below £10,000 pa: HMRC will allow you to settle via Self Assessment or you can contact them and ask for your Tax Code (personal tax allowance) to be adjusted.
Total dividends above £10,000 pa: HMRC will only allow you to settle via Self Assessment and you must register for self assessment if you have not already done so.
Capital Gains Taxes
- The price you sell shares at less the purchase price and expenses is a taxable gain subject to capital gains tax.
- The UK currently has a capital gains tax annual allowance of just £3,000 pa.
- This has been reduced dramatically from £12,300 in 2022/23 to £6,000 in 2023/24 and now at just £3,000.
- Taxable Gain = Sale price less purchase price and expenses less any unused capital gains tax allowance = Taxable Gain.
- The taxable gain is added to your gross income.
- If the gain or some of the gain sits within the Basic Rate Tax Band then you pay 10% Standard Rate Capital Gains Tax.
- If the gain or some of the gain sits within the Higher Rate Tax Band then you pay 20% Higher Rate Capital Gains Tax.
- Please note that gains on residential investment property is taxed differently at Standard Rate Residential Property 18% and Higher Rate Residential Property 24%.
- The Labour Party suggested in its Election Manifesto (June 2024) that it will not increase Basic, Higher and Additional Rate income taxes for working people but that does not mean Capital Gains Tax, so it may not be long before we see increases to capital gains tax rates and/or a removal of capital gains tax allowances.
Our Fees:
Capital Gains Tax as part of Self Assessment (for shares) CGT Non UK Property
Capital Gains Tax for Residential Property CGT UK Property
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