How Does Stock Market Tax Work?
Published April 23, 2021.
Investing in the stock market can make you an absolute packet if you make wise decisions, but there can also be tax liabilities incurred. So in this article, we going to explain how tax related to the stock market actually works.
Capital Gains Tax
The first thing to note with the stock market is that capital gains tax will probably apply if you make a significant profit in the market. Of course, you can always reinvest the money, and effectively avoid tax, but at some point, you'll need to face the music.
Shares and investments you may need to pay tax on include:
- Shares that are not in an ISA or PEP
- Units in a unit trust
- Certain bonds
Of course, this also varies from country to country, so it is important to seek advice and guidance from your national government.
Value Calculation
The responsibility also falls on the individual investor to work out any gains in value, in order to find out whether you do indeed qualify for tax. Most countries have a Capital Gains Tax allowance for the tax year, and if you do not exceed this figure then you are not liable to pay tax. However, different rules can apply, so it is again critical to pay heed to the advice of your national government.
Another issue worth considering with tax is that it is not usually necessary to pay tax if you offer shares as a gift to a husband, wife, civil partner, or charity.
Tax-Free Accounts
There can also be ways of avoiding tax by investing in tax-free accounts, such as ISAs or PEPs. A variety of bonds and gilts are also free from taxation. Finally, investing in some shareholders' shares can also be tax-exempt, depending on when you acquire the shares in question.
