Capital gains tax (CGT) rules can be confusing and often misunderstood by investors. While physical property is subject to CGT, we will focus on shares and funds in this article.

To calculate your CGT liability, you need to determine the difference between the purchase price and the selling price of your assets. Any gains above the tax-free allowance of £3,000 are subject to CGT. The rates for CGT on assets other than residential property have increased, with higher-rate taxpayers paying 24% on gains after 30 October 2024 and 20% on gains before. Basic-rate taxpayers face a more complex calculation, where gains exceeding the basic-rate tax band are taxed at a higher rate.

Calculating CGT can be tricky when you buy or sell shares over time. Shares of the same class in a company form a ‘Section 104 holding,’ and the average cost per share is used to determine gains. Dividend reinvestments also impact CGT, with the growth taxable as a capital gain using the average cost. Rules like the same-day and 30-day rules prevent certain tax avoidance strategies like ‘bed and breakfasting.’

Losses can help reduce your CGT bill and can be carried forward to future years if unused. It’s essential to report losses to HMRC and understand how they can offset gains. When it comes to funds, switching between share classes may or may not trigger a CGT event depending on the fund’s prospectus.

Keeping accurate records of your transactions is crucial for CGT calculations. Your investment platform may provide some information, but it’s essential to maintain your records, especially when transferring assets between providers. Platforms like AJ Bell, Hargreaves Lansdown, and Bestinvest offer tools to help you track your CGT liability.

In conclusion, understanding CGT rules and keeping detailed records of your investments can help you navigate the complexities of capital gains tax and minimize your tax liability.