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I am 45 years old and own around £7000 worth of BAE shares which I have owned since I was a child. I have no idea who bought them for me or when.
They are held as paper stock certificates, registered in my name at my mother’s address, and dividends are reinvested to purchase new shares.
I would like to sell the shares, especially since there are rumors that the capital gains tax will increase, but how can I calculate my capital gain and do I have to pay any tax?
I am self-employed and earn around £40,000 a year, so I am a basic rate taxpayer and would currently only pay a 10 per cent rate of capital gains tax (CGT).
If it is going to be too complicated to work out my actual gain, should I sell all the shares and pay 10 per cent tax on the total amount above the £3000 annual allowance? Can I do that or would HMRC want more information?
Tax Liability: How much capital gains tax do I have to pay on stocks bought to me as a child?
This Is Money’s Angharad Carrick responds: Many people are starting to think about how much capital gains tax they might have to pay if they want to sell their investments.
There are rumours that the Government will increase the CGT in the Autumn Budget to align it with income tax.
This would mean that the sale of assets, including shares, companies and second homes, would attract a much higher percentage of taxes, so some people are considering selling to avoid paying higher taxes.
Regarding your shares, you will need to calculate how much profit you have made since the shares were purchased from you.
This is complicated because it is not known exactly when they were purchased or by whom.
The first step should be to calculate the original price of the shares and then add up all subsequent dividend reinvestment purchases, in order to calculate how much profit has been made.
As you point out, solving this seems almost impossible, so what can you do?
I asked a tax expert for help with my calculation problem.
Robert Salter, tax director at Blick Rothenberg, says: In principle, it should be possible to calculate the cost of your BAE share fund even in the absence, at this stage, of definitive information on share purchase prices.
For example, you can contact BAE’s share registration department, who should be able to confirm when the initial shares were registered in your name.
From that date it should be possible to know the value of the shares of the initial acquisition.
Similarly, it should be possible to confirm the values of the various shares that have been added to your BAE “share fund” through dividend reinvestments over the years since then.
However, this would be a time-consuming exercise, requiring us to go back perhaps 20 or 30 years.
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High-flying: BAE shares have been on the rise after the recent defence boom
Angharad Carrick says: Contacting the BAE Systems share registrar should be your first step to obtain details of any communications. An internet search reveals that this is Equiniti, but they may want to charge you for the information they need.
If you have already tried to find this information and have not been able to, or you simply do not want to waste hours looking for it, there are other options.
As you suggest, you could pay appropriate tax on any gains above the £3000 annual capital gains allowance, because you will only pay a relatively small amount of tax.
However, before you consider paying this, there are still some ways to reduce your overall tax bill.
Robert Salter says: If you are married or in a civil partnership, you may be able to transfer 50 percent of the shares to your partner or spouse without paying tax.
They could then sell those shares separately and benefit from their own annual gains exemption, assuming they don’t have any other capital gains transactions this tax year.
It could also potentially sell 50 percent of the shares in the UK financial year 2024/25 and the remaining 50 percent of the shares in 2025/26.
Either of these approaches would (at least under current rules) reduce your capital gains tax liability compared to simply selling all of the shares in a lump sum.
Angharad Carrick says: Donating your shares to your partner or spouse, or to a charity, may be an easier option for you.
However, remember that if they later sell their shares, they may have to pay taxes on that gain, which will be calculated on the difference in value between when you first owned the asset and when they sold it.
There is one final option that would make the process of calculating your capital gains tax liability much easier, but to do so you will need to find out if the shares were purchased before March 31, 1982.
Robert Salter adds: If any of your shares were purchased before March 31, 1982, which may be possible in this case, you can rebase the value of the initial stock fund on its value on that date, rather than using the official share purchase prices.
For example, you may find that calculating the cost basis of any stock fund is simpler if you can use the March 31, 1982 values for the shares initially held, rather than the actual purchase prices of the shares.
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