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When selling an investment triggers a tax charge

Capital Gains Tax (CGT) is charged on the profit you make when you dispose of an asset, not on the amount you sell it for. That distinction matters. If you invest £8,000 and sell for £11,000, the gain is £3,000 — and that is the figure the tax office looks at, not the £11,000 that lands in your account.

A disposal is broader than many people expect. It covers selling shares or funds, but also gifting investments to someone other than a spouse or civil partner, swapping one holding for another, and in some cases moving assets into a trust. Transfers between spouses and civil partners are treated as no gain, no loss, so the gain simply passes to whoever receives the asset rather than being taxed there and then.

Nothing is due while you hold. The tax point arrives on the day of disposal, which is usually the settlement date rather than the day you place the trade.

How much you can make before tax bites

Each individual has an annual exempt amount — £3,000 for the current tax year. It is per person, not per household, so a couple can shelter £6,000 of gains between them. Unused allowance cannot be carried forward, which is why it is often described as use it or lose it.

There is a common trap here. Even when your gain is comfortably below £3,000, you may still need to report the disposal if your total sale proceeds across the year exceed four times the allowance — £12,000. No tax is due, but the paperwork is.

• Losses are offset against gains in the same tax year first, then carried forward.
• Carried-forward losses must be claimed within four years of the tax year in which they arose.
• You cannot use losses to generate a repayment of tax you never paid.

The rates and how your income shapes them

For most investments, including shares and funds held outside an ISA, the rate is 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. Gains are added on top of your taxable income to work out which band applies, so a large one-off gain can push you into a higher rate even if your salary is modest.

The practical upshot: if you are near a band boundary, splitting a sale across two tax years can keep more of the gain in the lower rate. It is worth running the numbers before you trade rather than afterwards.

Two shelters do most of the heavy lifting. Investments held inside an ISA are free of CGT entirely, and pensions are exempt too, so assets you never need to touch outside those wrappers generate no gain at all.

Records that make the sums straightforward

You need to know your base cost — what you originally paid, plus dealing fees, stamp duty and any other buying costs. Without it you cannot work out the gain, and reconstructing years-old figures is far harder than keeping them as you go.

• Contract notes for every purchase and sale, filed by date.
• Reinvestment details, including dividends used to buy more units.
• Records of corporate actions: splits, mergers, rights issues and takeovers all change your base cost.
• Details of any losses you have claimed or intend to claim.

Note the share matching rules. If you buy and sell the same holding, disposals are matched first against purchases on the same day, then against any purchase in the following 30 days, and only then against your general pool of shares. Selling and buying back quickly to reset a gain does not work the way people hope.

Keep records for at least six years after the tax year of disposal, and longer if there is any doubt about a valuation.

Practical ways to keep the bill down

There is nothing improper about arranging your affairs sensibly. The useful levers include:

• Using both partners' allowances where assets can be transferred between you without triggering a gain.
• Spreading disposals across tax years rather than selling everything at once.
• Sheltering future growth inside an ISA, or moving holdings into one gradually.
• Realising losses deliberately in the same year as gains, rather than leaving them unclaimed.
• Giving shares to charity, which can be exempt from CGT and generate relief elsewhere.

What you should not do is let the tax tail wag the investment dog. Holding a poorly performing asset purely to avoid a charge, or selling something you want to keep just to use an allowance, rarely pays.

Reporting and paying on time

If you already complete a Self Assessment return, gains are reported there. Register by 5 October following the end of the tax year in which you disposed, and pay by 31 January. Late filing brings penalties that quickly outgrow the tax itself.

UK residential property works differently: the gain must be reported and paid within 60 days of completion, using a separate online service, even if you have no other reason to file a return. Miss that window and interest starts running straight away.

If the figures are complicated — a large portfolio, a business sale, a property you once lived in — a qualified adviser will often save more than they cost. For most straightforward share sales, though, a tidy spreadsheet and a diary note in April will keep you comfortably on the right side of the rules.