ShareSave and capital gains tax: three strategies

A step-by-step guide to how capital gains tax applies to ShareSave schemes

Investing in ShareSave is an excellent way to grow your wealth over time, but it's crucial to understand the tax implications, particularly capital gains tax (CGT).

You might not have any CGT to pay, but that isn’t the case for everyone. Recent changes to the CGT allowance have brought more attention to how investors can plan for and manage their tax liability. In this article, we'll explore these changes and share some tax-planning strategies which might help.

We wrote this article to explain how ShareSave is taxed in the UK – if you’re looking for tax information in a different country, check out our support hub.

What is capital gains tax?

When you sell an investment and make a profit, the money you make is usually subject to CGT.

This is true for shares you buy in a ShareSave scheme.

The good news is there’s a capital gains tax allowance, which lets you make some gains each year without paying tax. However, it's been cut in recent times.

The old CGT allowance of £12,300 meant most people didn’t have to worry about tax when their ShareSave ended. Now the allowance is just £3,000 for 2024/25.

This means more employees will need to pay the tax, which for basic rate taxpayers is 18% of any gains over the allowance, and 24% for higher rate taxpayers. Remember, it is only the gain above the allowance that is subject to capital gains tax, not the full sales proceeds.

It also means you might need to complete a tax return – which can be a daunting prospect if you’ve never done one before. However, there is plenty of guidance on gov.uk to help you if you need to submit a return.

But with some planning, you’ll likely be able to reduce any tax liability, perhaps to zero. Here’s how.

‍

Strategies to manage CGT on your ShareSave

1. Use a Stocks & Shares ISA

ISAs offer a tax-efficient way to hold investments. When held in an ISA, investments like shares are free from both income tax and capital gains tax, and you don’t need to include them on your tax return.

Normally you can only put cash in an ISA but, there’s a special rule when it comes to ShareSave and ISAs – you can move up to £20,000 worth of shares in each tax year from ShareSave straight into an ISA within 90 days of buying the shares. If the 90 days crosses two tax years, you can potentially move up to £40,000 worth of shares.

But timing is crucial – you’ll need to make sure you do this before the 90 days is up, or you’ll lose the opportunity.

From there, you can either keep or sell the shares, and you won’t need to worry about tax.

To find out more about making an ISA transfer, search ISA transfer in the support hub. Find out more here.

2. Gift shares to your spouse

Another strategy is to gift shares to your spouse or civil partner.

The gift is free from CGT, and the receiving spouse effectively takes on the base cost of the transferring spouse so it can be an effective way to make use of both partners’ CGT allowances.

Here's how it works. Imagine you’re planning to sell shares at the end of your ShareSave plan and you’ve made a gain of £6,000. With the CGT allowance of £3,000, half of your gains will be tax-free, but you’ll need to pay tax on the rest.

But if you first transferred half of your shares to your spouse, then you both sold, you’ve made a gain of £3,000 each. This is within each of your allowances and there’s no tax to pay. Note that this assumes you haven’t made any gains elsewhere in this tax year.

Before making a transfer to your spouse you should be aware that this does have to be a genuine gift to your spouse in order to benefit from the above rules. Find out more here.

‍

3. Spread sales over multiple tax years

If you’re planning to sell shares which would tip you over the annual CGT allowance, you could consider spreading the sale of shares over multiple tax years.

This allows you to use more than one year’s allowance. The tax year starts on 6 April and ends on 5 April the following year.

To return to the example above where your gain would be £6,000, if you sold half of your shares in one tax year, and half the next, you could use both year’s allowances and pay no tax.

‍

4. Use a personal pension

You can also move shares from ShareSave into a personal pension within 90 days of receiving the shares. The transfer is free of CGT if the shares are transferred directly to the personal pension immediately on exercise. However, in reality this cannot be facilitated by most administrators and personal pension providers.

In line with most workplace pension schemes, it’s not possible to transfer your shares from a ShareSave plan to your NatWest workplace pension.

To sum up, managing capital gains tax on your ShareSave scheme is a prudent and legitimate financial move that can help you keep more of your hard-earned gains.

Using the strategies above you’ll go a long way towards reducing your tax liability, and in most cases eliminating it altogether.

As we’ve seen recently, tax rules, rates and allowances can change, so it’s important to stay up to date. The tax you’ll pay will depend on your individual circumstances. If you’re not sure whether you need to pay tax, or how much, you should get in touch with an adviser. Find out more here.

You can also find out more about tax calculation and reporting here.