Can one reduce their capital gains tax liability with £20,000 worth of shares obtained from a past employer?
A reader, who constructed a £20,000 worth of share portfolio through old employer's predecessor savings and employee share schemes between 2008 and 2014, is considering selling those shares to reinvest the funds in a more diversified portfolio. However, the individual has concerns about the potential tax bill, despite being a basic rate taxpayer.
The shares are currently held as certificates. The reader is interested in moving them into an investment account, but seeks guidance on the calculation of capital gains tax (CGT) and ways to lower the tax bill.
According to Rob Morgan, chief analyst at Charles Stanley Direct, the intricate process of working out the CGT bill can be tedious but manageable with proper documentation. Firstly, it is essential to understand the basics of CGT: it is a tax levied on any profits made from investments, applicable when selling shares held outside a tax-efficient account, such as an Individual Savings Account (ISA).
For the 2025/26 tax year, CGT rates are 18% and 24% for basic and higher rate taxpayers, respectively. This rate is applied to the profit made, which is calculated by subtracting the purchase price from the sale proceeds.
Notably, if an individual's gain, along with their income, exceeds the threshold for the higher rate tax bracket, they will be liable to pay 24% on the amount exceeding the threshold, with 18% applied to the portion below it. For Scottish taxpayers, the CGT rate is determined by the rest of the UK income tax bands.
Individuals need to pay CGT only if their realised profits in a tax year surpass the annual CGT allowance. In the 2025/26 tax year, this allowance is £3,000.
When calculating the profit and subsequent tax, it is fundamental to keep accurate records, including the cost of each purchase transaction and netting it against sale proceeds (after fees). In the case of multiple sales, the purchase cost is applied to each sale on a proportional basis.
To minimize the CGT, strategies such as taking advantage of the CGT allowance over multiple years by selling assets in parts, transferring shares to a partner (if married or in a civil partnership), or utilizing losses on other investments to offset gains can be helpful.
If the reader decides to keep their shares, they can convert them from a physical certificate into electronic form—a process known as dematerialising—by contacting their stockbroker or investment platform. This will make management and future sales easier while reducing broker fees for certified sales.
The reader might consider using the annual CGT allowance to lower their tax bill, as any realized profits within the allowance (£3,000 in the 2025/26 tax year) are exempt from CGT. Additionally, for a more significant reduction in CGT, methods like spreading sales across multiple years, transferring shares to a spouse (if married or in a civil partnership), or using losses from other investments to offset gains can be beneficial strategies to consider.
