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Taxes when selling stock in the UK explained

You can’t do anything without being taxed so you won’t be surprised to read that there are taxes when selling stock and share options. When you buy UK shares you have to pay a duty on the transaction which is deducted from your payment for the shares. When you sell your shares at a later date there are also taxes that need paying.
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Buying shares

The tax that you pay when you invest is called Stamp Duty Reserve Tax when you buy shares electronically through the CREST system, and simply Stamp Duty when you fill in a stock transfer form on paper. Both paper and paperless transactions are automatically taxed at 0.5%. This amount is deducted from what you’re paying for the share, which might be different from its current market value. You’ll have to pay tax when you buy existing shares in a company incorporated in the UK and when you purchase shares in an international company that maintains a share register in the UK. You’re also taxed when you buy an option to buy shares. There’s no tax when you buy employee shareholder shares, but that’s capped at £50,000 and you don’t pay tax when you’re given shares for free. There’s also no tax when you invest in a “open ended investment company” because the trust set up for this firm pays the tax.

Selling shares

When you go to sell your shares, your profits are subject to Capital Gains Tax. This is a charge made against the total gain minus the cost of acquisition and any disposal costs. If you bought shares for £2,500 and then sold them for £12,500, you’d pay tax on the £10,000 difference. The amount paid depends on your overall income. In this scenario there would be no CGT as long as you didn’t earn any other money in the tax year as there’s a personal threshold of £10,900 under which you’re not taxed. Whatever amount you earn through all endeavours (paid work, selling assets, profit from rented accommodation) is added together and you’re taxed on the amount over £10,900. For most people therefore there are taxes to be paid when selling shares.

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