4 mins
September 15, 2023

What is Capital Gains Tax, how and when to pay it

When is the 2023 Capital Gains Tax deadline?

The deadline to declare any gains on investments that might be subject to Capital Gains Tax (CGT) is January 31st 2023. 

In this article, we’ll explain what CGT is, if and when you’re liable to pay it, and how much you’ll pay. 

What is Capital Gains Tax?

Capital Gains Tax is tax on any profits you make from certain investments. We say ‘certain’ because not every type of investment and investment account is subject to CGT.

If you have a General Investment Account (GIA) then any profits you make that take you over the Capital Gains Tax Allowance will be subject to CGT and must be reported. 

Profits and investments held in an ISA or a Stocks and Shares ISA, are protected against CGT, as long as they’re within the £20,000 annual limit.

What is the Capital Gains Tax Allowance? 

Just like with your regular income, you get a tax allowance for your capital gains (the profits on your investments). 

For 2022/23, this allowance is £12,300. If your capital gains fall below this allowance, then there’s no need to report to HMRC. 

For example: You invest £5,000 in a GIA and it gains by 10% making your holding worth £5,500. You sell your shares and now your capital gain is £500. The £500 you’ve gained may be liable for Capital Gains Tax, if, when added to your other taxable gains* for that year, the total is more than £12,300.

*Other taxable gains can include stock market investments, as well as profits from the sale of property, art, and jewellery.

How much CGT will I pay?

The rate of Capital Gains Tax you pay depends on your income taxpayer status. For the stock market in 2022/23, the rates are:

Capital gains Tax rate
Gains that stay within the basic rate taxpayer band when added to your taxable income 10%
Gains that move into the higher rate taxpayer band when added to your taxable income 20%

What about capital losses?

Capital losses count when considering your overall capital gains for a year, and whether you need to pay tax.

For example: You make a profit on one investment of £15k and a loss on another investment of £5k. Your net capital gain is £10k, keeping you below the Capital Gains Tax allowance, meaning there’s no need to report to HMRC.

How can I minimise Capital Gains Tax?

One of the most popular ways of protecting profits against tax is with a Stocks and Shares ISA. This is because most profits made within a Stocks and Shares ISA are realised tax-free. 

Certain stocks and transactions might be subject to local fees, and you’ll still pay stamp duty on UK stocks (taken at the point of sale) but with a Stocks and Shares ISA you don’t need to worry about the £12,300 allowance.

You can pay up to a maximum of £20,000 into a Stocks and Shares ISA in the 2022/23 tax year.

You can only open one Stocks & Shares ISA per year. Please note, tax treatment depends on the individual circumstances of each client and may be subject to change in future.

Open a Stocks and Shares ISA

For more, see our articles on Tax Allowances and the benefits of Long-Term Investing.

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Remember when investing, your capital is at risk.