Taxing Times Sep 11

I have built up a share portfolio over the years but with the recent collapse in share prices I am worried about losing any more value and I am considering selling the lot. Despite the recent fall in value I have made gains on some of the shares as I have had them a long time but some of them, such as shares in the banks, I have got quite big losses on them. What will be the tax position be if I sell?

Answer:

The stock market has taken quite a hammering recently but you would have also seen that on any one day it can make up a lot of ground quite quickly. Before you do anything rash I would suggest that you speak to a financial advisor as it may be advisable to hold your nerve!

However, if you are certain on selling, the gains and losses arising will come with the scope of capital gains taxation rather than income tax. Quite simply a gain or loss is calculated by comparing the proceeds of sale with the amount you paid for the shares. Dealing costs paid to stockbrokers for example are also deductible.

To calculate the taxable amount you would add up all the shares upon which you make a gain and deduct all those upon which you make a loss to give you a net gain (or net loss) figure. All individuals have an annual capital gains tax exemption allowance similar to the personal tax annual allowance. The exempt amount for 2011/12 is £10,600. So if your net gains are below £10,600 then you would have no tax to pay. If your net gains are above this figure then you would pay tax on the excess. The rate of tax will be either 18% or 28% depending on your other personal income levels. If you have a net loss then the loss may be carried forward and can be used to reduce capital gains arising in future years.

From a tax planning point of view if your gross gains are below £10,600 you may want to consider just selling those shares with gains in order to maximise the use of your exempt allowance. The loss making shares could then be sold in the new tax year (after 6 April 2012) and the losses arising will then be available to use against any future gains, such as the sale of buy to let house for example. However, you would have to weigh up such a plan against further share price movements.

Any reader interested in discussing this topic further can telephone Graham Jennings on 01344 875000 or email graham.jennings@kirkrice.co.uk

Answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.