CGT on shares

[traceycoleman]

Hi there,

Apologies if this has already been asked before - i'm not at all financial minded so it's probably a very basic question.

I currently hold about £250,000 in shares - they're making about 8% a year so roughly £20,000 per year

I understand CGT is due on this £20,000 - however, I have a few basic questions:

1. If I leave my shares alone (e.g. don't cash them out) over multiple financial years - do I only pay CGT on the interest that's accrued when I finally cash out?

2. If that's the case - should I be cashing out my shares each financial year up to the value of my CGT allowance (£12,300 i think) - to minimize the amount of tax due? Is that a good strategy?

Thank you for any help you can provide
Tracey

[Lambs]

T,

Generally, a share portfolio yields dividends. Dividends are taxable as income - Income Tax, not Capital Gains Tax.

However, a portfolio that is being actively managed might well undertake several transactions a year - buying and selling shares in and out of the portfolio. These are capital transactions, and the sales are disposals potentially triggering a charge to Capital Gains Tax. Note that whether or not you actually see any of the cash, or it is simply reinvested back into the portfolio, is largely irrelevant.

So, your "roughly "£20,000 a year" could represent dividend income, capital gains, or quite possibly a mixture of both.

In general terms, interest or dividend income arising to bonds or shares in a portfolio are taxed as the income is received or credited. This is usually independent of any purchases or sales of individual holdings, although there are special rules that apply for some loan stocks that may affect the amount of income that you are deemed to receive overall.

It is quite possible, given the amounts to which you refer, that you have no further tax to pay. But it is also quite possible that you do - particularly if you have other sources of taxable income or gains, such as employment income or pensions.

You should take advice on whether or not you need to account for tax on the annual movement and incomes to the portfolio, which might well arise regardless of your "cashing out". In other words, leaving your portfolio alone does not necessarily mean that you have no tax to pay on annual activity in the fund.

Certainly, "cashing out" is likely to result in a substantial capital gain, although this could be spread over several years (so as to maximise available CGT exemptions) by cashing out in stages over several tax years. This is broadly in line with your point (2).

I trust this is useful.

With regards,

Lambs

[someone]

What Lambs said.

Given the 8% I would expect that you're getting dividends automatically reinvested. If this is just a buy and hold portfolio then you might need to dig into the details of any statements to find out how much the dividends were for. 4% dividends, 4% capital gain sounds more reasonable over longer periods than 8% for either unless you've been very lucky.

Assuming you aren't already maxing out your ISA allowance then one strategy could be to cash out 20K each year and reinvest it in an isa. But make sure you don't get caught by bed and breakfasting rules. (I have no idea how it would work if you sold from non-isa and bought in an isa the same day, it might not matter)

And, of course, if it's already in an isa then there's no tax problem to worry about.