Capital Gains Tax, what do I declare?

[Illdoitinabit]

Hi all, just hoping someone can help push me in the right direction here.

Back in 2018 my husband and I invested a significant sum of money, to try and keep this as simple as possible let's call it £1000. Since then we've made a nice little profit on it, again to keep things simple let's say our investment is now £1200 and assume its increased by 20%. We've made 2 large withdrawals, one last tax year and one this tax year.

What do I need to declare in captial gains tax? The full amount or just the 20% we've made interest on as technically, the other funds were already ours? I understand that they will be declared separately.

Hope that makes sense and thank you in advance!

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance of £12,300 per annum , so profit over £12k (and this can be offset against any other losses)

If they were in an ISA they are exempt from CGT.

There is a calculator here:
www.gov.uk/tax-sell-shares

You need to take advice if you're not sure.

Was it a general investment account or an investment bond? The product you used for the investment is your starting point.

Who organised the investments for you? They should be able to help you.

@JamMakingWannaBe

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance of £12,300 per annum , so profit over £12k (and this can be offset against any other losses)

If they were in an ISA they are exempt from CGT.

There is a calculator here:
www.gov.uk/tax-sell-shares

You pay tax on the increase (the capital gain), if the gain is over the annual allowance.

The calculator is easy to use, and all you need is the purchase date and price, and sale date and price. You get a print out of your calculation and attach it to your tax return

Scuse my ignorance and don’t want to derail, but would that be CGT, or just income tax as the interest is income?
I thought capital gains was for things like property or antique paintings and payable as someone said just on the profit over and above what was originally paid

Depends what the investment was in, and how much it is. If it's an investment in a company, you can attract entrepreneur's relief on winding it up, which is reasonably complicated but reduces the CGT liability. I assume it's not any of that, as you'd obviously have an accountant.
If the profit is under 25k, you don't attract CGT but would be taxed on the profit as income afaik, so it would just be taxed at your marginal rate if you're not a basic rate taxpayer/ within annual allowance.

@User0610134049

Scuse my ignorance and don’t want to derail, but would that be CGT, or just income tax as the interest is income? I thought capital gains was for things like property or antique paintings and payable as someone said just on the profit over and above what was originally paid

So if you’ve invested in stocks and shares there are 2 types of tax payable

1. Annual income drawn from the dividends you’re paid out in cash. Dividends are classified as income. You have a £2000 tax allowance per year though, so you’d have to have large portfolio to receive that much ( mrs Sunak🤦‍♀️).
2. Capital gains - this tax applies to the growth in value of your investment portfolio. You do not pay this until you sell shares/stock. Then you pay capital gains on the difference between what you paid vs value at sale. You have, as other say a £12200 tax allowance per year before you pay tax on gains.

Note that if your investments pay dividends but you “reinvest” those into buying more shares of same fund, then you don’t receive an income from them and don’t pay income tax at time. But your capital will grow more quickly as you accumulate more shares, so that would in theory be subject to capital gains tax.

But both sources of tax can be legitimately avoided by using an ISA “wrapper”: so you could invest £20k per year and take dividend income entirely tax free, or sell for in excess of £12200 gain and not be charged capital gains

@Illdoitinabit - can you clarify what you mean by investment?

If you invested funds and they have earned interest, you should be paying Income Tax on this as the interest arises regardless of if/when it was withdrawn. You can have £1,000 tax free each year if you are a basic rate tax payer or £500 tax free as a higher rate tax payer.

If it’s shares paying dividends you owe tax on these in the tax year they are paid (first £2,000 tax free). This is regardless of if/when you withdrew the income from the portfolio.

If it was an investment you sold then depending on the asset CGT is payable on the difference between the proceeds (less selling costs) and cost. £12,300 is tax free. CGT rate will depend on how much income you’ve earned and will be more if a residential property. If it’s an investment bond for example, there is no CGT when it ends.

You would be taxed on half each if held jointly but are each entitled to the full allowances each.

@MayMorris - Drip dividends on ordinary shares are still taxable?

Thank you @MayMorris

I understand

So back to the OP, if they haven’t sold the shares/investments there will be no CGT to pay, it’s just the income tax on the dividends or interest. (Unless it’s via an ISA in which case it’s interest free up to a certain amount)

Hope I’ve got that right

[quote Sapphirejane]@MayMorris - Drip dividends on ordinary shares are still taxable?[/quote]
Drip dividend? Don’t understand what you mean…
All income paid over the year from dividends is taxable…irrespective of whether ordinary shares, bonds etc…it’s all investment income
You need to total what you got over the year. If you received over £2k allowance you will need to submit tax return and pay the tax. Obviously if you are a zero rate tax payer then you can use up your personal allowance too….

[quote Sapphirejane]@Illdoitinabit - can you clarify what you mean by investment?

If you invested funds and they have earned interest, you should be paying Income Tax on this as the interest arises regardless of if/when it was withdrawn. You can have £1,000 tax free each year if you are a basic rate tax payer or £500 tax free as a higher rate tax payer.

If it’s shares paying dividends you owe tax on these in the tax year they are paid (first £2,000 tax free). This is regardless of if/when you withdrew the income from the portfolio.

If it was an investment you sold then depending on the asset CGT is payable on the difference between the proceeds (less selling costs) and cost. £12,300 is tax free. CGT rate will depend on how much income you’ve earned and will be more if a residential property. If it’s an investment bond for example, there is no CGT when it ends.

You would be taxed on half each if held jointly but are each entitled to the full allowances each.[/quote]
Hi, yes..apologies you are completely correct..income tax is due on dividends reinvested!
Just checked for myself

I’ve always done within ISA or at values of income way below allowance so never realised this! 😳🤷🏼‍♀️ Everyday is a learning day,
Thanks

@MayMorris you said -

Note that if your investments pay dividends but you “reinvest” those into buying more shares of same fund, then you don’t receive an income from them and don’t pay income tax at time. But your capital will grow more quickly as you accumulate more shares, so that would in theory be subject to capital gains tax.

Sorry don’t know how to quote. Those are DRIP dividends, tax is still payable on the amount of the dividend when it is paid regardless of reinvestment into more shares.

@MayMorris X-post!