Here's some valuable advice if you’re planning on realising the value of your shares.
Whenever you sell or dispose of certain types of asset, you may find that you owe Capital Gains Tax (CGT). The tax is based on the ‘chargeable gain’ – or, in simple terms, the difference between your proceeds and the original cost.
CGT is payable on the disposal of property which isn’t your main home. It’s also charged on company shares. You can, however, make a gain of up to £11,100 before you reach the threshold at which you have to pay tax.
• Before the 2016 Budget
Two rates of CGT existed for individuals prior to the 2016 Budget: a standard rate of 18% and a higher rate of 28%.
• After the 2016 Budget
Following the Budget announcement, the two rates were reduced to 10% and 20% respectively, although different figures apply to certain residential properties.
With regard to shares, here are some questions to think about when considering your liability:
How are the shares held?
If they’re held in an Individual Savings Account (ISA), they are exempt from CGT.
What type of shares are they?
Are the shares held in a large PLC or a family-owned trading business? If they are in a trading business in which you work (and hold at least 5% of the shares and voting rights), you may qualify for Entrepreneur’s Relief, which provides for a rate of 10% on the whole gain. If you’re unable to claim Entrepreneur’s Relief, some or all of the gain may be taxed at 20%, depending on the level of your other income.
Are you planning on disposing of a number of assets around the same time?
If you want to take full advantage of your annual allowances, it probably won’t make sense to dispose of a number of assets at a similar time. It’s certainly worth taking professional advice before proceeding.