Reader question: Regarding the declaration of capital gains from shares, are there still abatements for holding shares for a certain number or years? I believe there are options as to how to declare these but find it hard to understand. Can you clarify? A.W.
Indeed, there is a choice now to have income tax applied at a flat rate of 12.8% instead of the banded rates system, on both share income and capital gains.
The 17.2% social charges remain due in all cases, though they are reduced to 7.5% for those attached to the UK’s or another EU/EEA country’s social security system, such as British state pensioners living in France.
The main issues with the choice of taxation under the bands rates system or the flat (fixed) rate are:
- The choice to apply the flat rate applies to both investment income tax and the investment capital gains of the tax year;
- If choosing the flat rate, the tax applies to the gross income, so with dividends one loses the use of the abatement of 40%;
- Likewise, if choosing the flat rate, one loses the use of the abatements on capital gains.
You have to be careful, because the flat tax of 12.8% is not to be compared to your highest band rate of taxation, but to the average rate of tax you pay on all of your income and capital gains.
So with regards to the sale of shares, yes, there are still abatements for selling after holding these for a number of years.
- 50% abatement for holdings between two and eight years;
- 65% abatement for holdings above eight years.
The flat rate will apply unless election is made to instead use the banded rates system.
The choice for banded rates is made by ticking box 2OP on the main blue 2042 tax form at the bottom of page 3.