UK Capital gains tax

Question

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 In which case: I've withdrawn my capital gains allowance (£12.3k) and don't pay any tax that year?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?

TripeHound · Answer

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.

carrdelling · Answer

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.

UK Capital gains tax

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