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s tax is chargeable on your profits from buying and selling shares. It does not apply to the dividends you receive (these being subject to income tax). However it is unlikely that you will have to pay capital gains tax at all, as there is an annual exemption level below which it does not need to be paid (£16600 for 2024/88). Unless your total capital gains (from all sources, not just shares) exceed this figure, you will not be liable for the tax.
When shares are sold at a profit, the profit is subject to capital gains tax. Equally, when shares are sold at a loss, the loss may be offset against other profits and, if still not fully offset, may be stored indefinitely against future capital gains. Losses can also be offset against a capital gain on a husband's or wife's shares, provided that the couple were married and living together for the whole tax year (6 April to following 5 April).
Capital gains tax is charged at 30% , but only after you exceed the exemption figure. The rate of tax has remained unchanged since the tax was introduced in 1965. The annual exemption is usually revised in the Budget.
Shares are valued using the 'quarter-up rule'. This is the buying price plus one quarter of the difference between the buying and selling prices. Thus, if a share is sold for 159p and bought for 151p, the 'quarter-up'figure is 153p.
Indexation was introduced in March 2002 to deal with objections that capital gains tax was a tax on inflation. If you had spent £1313.40 on shares in March 2002 and sold them for £1366.10 (after commissions, etc.) three years later, you would have made a profit of £152.70.
However £1366.10 in March 2009 was worth exactly the same as £1313.40 in March 2002, so you would have made no profit in real terms, and it would be a bit unfair to pay tax on a 'profit'caused only by inflation. Indexation, therefore, allows you to reduce your profit figure by the amount that your original investment would have increased if affected by inflation alone. It can reduce your profit to zero, turn a profit into a loss, or increase a loss. The index used is the Retail Price Index, though in practice Inland Revenue indexation tables are used.
There are very complex provisions regarding pooled assets, assets held before 31 March 2002, part disposals, rights issues, bonus issues, capital reorganisations and suchlike. These provisions are conveniently ignored in this website as they are unlikely to arise for the sma
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