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Who pays capital gains tax?

When you first start investing [1] and you’re saving tuppence ha’penny from your newspaper round to buy shares in Apple, the idea that you’ll ever have to pay capital gains tax [2] can seem outlandish.

After all, you get a tax-free capital gains allowance each year – currently £10,600 – and there are also ISAs and pensions [3] that you can tuck money into and so entirely protect it from capital gains tax.

Besides, who makes capital gains anymore? With everyone obsessed with falling share prices rather than the intermediate strong rallies we’ve seen over the past decade – and ignoring what the steadily lowered multiple [4] put on shares might imply for future returns (clue: good stuff) – the only game in town these days seems to be dividend income.

Capital gains are so 1990s!

Finally, capital gains tax is only liable when you sell an investment. Don’t sell, and you don’t have to pay it. Simples!

Tax raided

In reality, capital gains tax (CGT) can sneak up on you unless you take steps to avoid it (not evade it [5], which is illegal).

CGT is payable annually at 18% or 28% (or at 10% if you qualify for entrepreneur’s relief). See my article on UK capital gains tax [2].

If you have made a gain and you don’t qualify for entrepreneur’s relief [11] or similar, you’d better start limbering up your cheque-writing hand.

But before you do so, consider whether you can offset any losses to reduce your total gain [12], as well as other capital gains tax avoidance strategies [7].