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If I invest £100,000 in the stock market, and assume, for the sake of argument, they rise in price 100% in a year. I then sell £24,600 worth in the subsequent year. I haven't used any of my UK capital gains allowance for the year 2020/21.

If I've made 100% and I take out £24,600, does that mean that £12,300 counts as my original money, and £12,300 then is counted as profit/capital gains? In which case: I've withdrawn my capital gains allowance (£12.3k) and don't pay any tax that year? Or does the £24,600 count as all profit, so I then pay tax on the remaining £12.3k? Essentially I'd like to know: how is the money seen in terms of the tax man in this kind of scenario?

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    Welcome MrMeeseeks. You'll need to clarify two things here to get an answer: (i) “see a return” – do you mean a capital appreciation based on the share price (while you still own the shares), or dividends, or selling the shares? (ii) "take out" – do you mean selling the shares, withdrawing cash from your brokerage account, both, or something different?
    – marktristan
    Commented Jul 13, 2020 at 9:29
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    Hi Mark, thanks for the request for clarification & sorry about the confusion. i) yes, I mean purely capital appreciation. So each stock was worth £1 when I bought it, now it's worth £2. No dividends or other stuff ii) I mean selling the shares worth the amount stated.
    – MrMeeseeks
    Commented Jul 17, 2020 at 11:40
  • MrMee when a comment ask for clarification, it is recommended to add the clarification to the question rather than in a comment. Nevertheless, thanks for the additional information.
    – prl
    Commented Jul 18, 2020 at 21:27

2 Answers 2

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To expand slightly on carrdelling's answer...

(For the moment, I'll assume your original £100,000 was invested in a single "thing": e.g. the shares of one company or a single mutual fund etc.).

If, after a year, your investment has doubled in value and you sell £24,600 worth of that "thing" then you will not pay any Capital Gains Tax. The original value would have been £12,300, so you've made a Capital Gain of £12,300. Because this exactly matches your allowance, no tax would be due.

Of course, if you were to sell any more in the same financial year, because you have now "used up" you tax-free allowance, you will pay CGT on the total gain. Note also that the gain is unlikely to remain 50% of what you sell for... the gain is the difference between the price when you bought the "thing" and the price when you sell.

If your original investment was not a "single thing" (and the general advice is you shouldn't put "all your eggs in one basket"), then things will usually be a little more complicated.

With a "basket" of 10 different shares, even if collectively they have doubled in value, it would be very unlikely that all 10 shares have exactly doubled in value. Some may have risen by 120% (more than doubled), some may "only" have risen 50% and some may have fallen to 80% of their original value.

For each type of share you need to determine the value when you sold it, and the value when you originally bought it. The difference between the two is the capital gain (or loss). Add together the gains/losses for each share you sell, and that total will be your total capital gain.

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    And to clarify: withdrawing cash (or not) from the broker account has nil effect on your CGT liability. It's just as TripeHound has described here, i.e. the crystallisation of your gain, minus the capital gains personal allowance. Of course, if your shares are held in an ISA or SIPP however, they are capital gains tax free.
    – marktristan
    Commented Jul 23, 2020 at 17:35
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You pay taxes when you materialise your gains, i.e., when you sell your shares. If you invest today £100,000 in shares of GREAT, and then tomorrow the price of GREAT doubles, you still haven't realised any gains (so you pay nothing).

However, if tomorrow (after seeing the price doubled) you decide to sell everything, you would have made £100,000 capital gains. These £100,000 are taxed, but because you have an unused allowance of £12,300, then you only pay taxes on the other £87,300.

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  • I think the question is about what happens if the OP only sells some of their purchase.
    – Ganesh Sittampalam ♦
    Commented Jul 18, 2020 at 14:51
  • Even in that case, the answer is still the same - tax is calculated over the portion he sells. E.g., if he sells half of his shares, gains would be £50k, minus £12.3k of allowance, would have to pay CGT on the other £37.800
    – carrdelling
    Commented Jul 19, 2020 at 15:46
  • Right - but your answer itself doesn't explain that (plus there are some nuances with different assets as the other answer explains).
    – Ganesh Sittampalam ♦
    Commented Jul 19, 2020 at 16:20

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