Hi everyone, hoping someone can clear this up for me as I’m going around in circles reading about it.
If I invest £100,000 into a fund this tax year and sell nothing — I won’t pay any capital gains tax this year, right? That part I think I understand.
My scenario
Let’s say the fund increases by 10%, so it’s worth £110,000 the following tax year. If I then sell £50,000 — that’s only the money I originally invested, so I shouldn’t pay any tax on it, right? It’s not profit, it’s just my own money back?
And at what point would I actually start paying tax on whatever the fund has appreciated? Is it only when I sell the gains portion, or does it apply to everything I sell once the fund is up?
Can someone point me to a good article or explain it with examples? I’m really struggling to get a straight answer on this.
Thanks in advance!
Not investment advice.
There are two aspects to this, firstly your capital gain allowance that allows you to have a certain amount of gains without needing to pay tax on it (eg. ÂŁ3000 allowance for tax year 25/26) and the capital gains on the shares you sell. A gain is only potentially taxable when you make an actual sale.
If you invested ÂŁ100,000 and then sold ÂŁ55,000 (I changed your figure just to make the math easier) the next tax year at a valuation of ÂŁ110,000, you would have realised a ÂŁ5,000 profit on the sale of half your holding.
You could then off-set the ÂŁ3,000 CGT allowance (this allowance figure may be changed from year to year by the government so you need to check the current allowance) and have ÂŁ2,000 of potentially taxable gains.
Important if you use a Stocks & Shares ISA account (you can contribute up to ÂŁ20,000 this tax year 25/26) then no tax is payable for capital gains or dividends for holdings within the ISA.